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Meanwhile, in the Senate, two lawmakers offered up an alternative plan. It does seem there's support for including some kind of rollback of the cap in the budget bill now being negotiated.
A $10,000 cap on the federal deduction for the state and local taxes that individuals pay would rise to $72,500, with the limit on the tax break extended beyond its original expiration date, under the latest version of a massive piece of budget legislation congressional Democrats have been working on.
The cap on the tax deduction, imposed as part of the Republican-led 2017 tax overhaul, was set to expire at the end of 2025. Legislative text that House Democrats released Wednesday would stretch it to 2031 and retroactively apply the new, higher cap beginning in 2021.
As Democrats try to reach a compromise within their party on the bill, the so-called SALT deduction has become a sticking point. It's generally wealthy households that benefit the most from the tax break and that doesn't sit well with some lawmakers in the party.
But the cap also tends to most burden taxpayers in Democratic-leaning states, with higher earners, higher taxes and higher living costs compared to other places. And, in recent days, as deliberations over the spending package have unfolded, a number of key Democrats have indicated that the limit on the tax deduction will be, in some way, rolled back under their legislation.
This latest proposal, with the $72,500 cap, would cost the federal government about $300 billion through 2025, with roughly $240 billion going to people making over $200,000 per year, according to estimates from the Committee for a Responsible Federal Budget.
"There really is no good way to do SALT cap repeal. There's no way that it's progressive. There's no way that it's middle class tax relief," said Marc Goldwein, the budget watchdog group's senior vice president and senior policy director. "You can limit the damage, you can limit how much you give to the very, very top. But you can't really turn it, in my opinion, into good policy," he added.
Democrats have a narrow margin to pass their bill in the House—they can afford to lose no more than three votes. And they can't lose any votes in the Senate if they want to get the legislation through that chamber. This is assuming no Republicans vote for the package.
For estates, trusts and married individuals filing separate tax returns, the cap would be $36,250 under the new proposal. Current law sets the cap for married individuals filing separately at $5,000.
Two senators, Bernie Sanders, a Vermont Independent who caucuses with Democrats, and Bob Menendez, a New Jersey Democrat, threw their weight behind a plan on Wednesday that would leave the $10,000 cap in place permanently, but exempt from it households earning somewhere in the ballpark of $400,000 to $550,000 annually.
Over 10 years, they said this approach would be "deficit neutral," meaning it wouldn't add to the nation's budget shortfalls.
Sanders on Wednesday said that the $10,000 cap was too low and unfair to middle class families, but he again spoke out against repealing the cap entirely, saying that would be a boon to the wealthy.
While Sanders described the $72,500 cap proposal as an improvement on completely eliminating the limit, he said it would still be costly and would yield outsized gains for higher earners.
Menendez, who hails from one of the states with a larger share of taxpayers in line to benefit if the cap is lifted, voiced confidence that Democrats would arrive at some compromise that eases the $10,000 limit. "We are optimistic that we can reach an agreement soon to solve this issue," he said.
Goldwein, with the Committee for a Responsible Federal Budget, said if he were forced to design a policy that lifted the cap, he'd go with an option that might remove the limit for households making below $100,000 per year and then phase the $10,000 cap back in for those earning up to $200,000.
"Something like that. I don't think it's ideal policy," he said, noting that an added benefit of the cap when combined with a higher standard deduction—another facet of the 2017 tax revisions—is that it makes the tax code simpler by reducing the number of people who are itemizing on their tax returns.
Imposing the tighter income restriction and then phasing the cap back in above that threshold, he said, has the potential to address the problems people have raised with the current limit creating hardship for middle-income earners in some high-tax states. "I'm not sure," he added, "why we have any SALT deduction, frankly, for the rich."
Bill Lucia is a senior reporter for Route Fifty and is based in Olympia, Washington.