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Deal for state and local tax deduction cap may happen this week, key Democrat says

Rep. Tom Suozzi, D-N.Y., speaks during a news conference announcing the State and Local Taxes (SALT) Caucus outside the U.S. Capitol on April 15, 2021.

Sarah Silbiger | Bloomberg | Getty Images

Rep. Tom Suozzi, D-N.Y., is expecting an agreement this week for changes to the $10,000 limit on the federal deduction for state and local taxes.

The measure, known as SALT, has become a bargaining chip among lawmakers in high-tax states, such as New York, New Jersey and California, threatening to torpedo the Democrats’ multitrillion-dollar spending package.

While the budget can pass without Republican votes, Democrats need support from nearly all members of the House and every Democratic senator.

“If they try to advance a bill that does not include a fix of SALT, there will not be sufficient votes to pass the bill,” Suozzi told reporters on a call.

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However, he is optimistic about the deal as the Democrats’ plan advances to the House Rules Committee.

“I feel very good about this,” Suozzi said. “Things are moving in the right direction.

“There are a lot of other people who are concerned about this issue.”

The SALT cap has been an ongoing battle since former President Donald Trump added the limit during his signature 2017 tax overhaul.

That’s because Americans who itemize deductions can no longer write off more than $10,000 for property and state income taxes on their federal return.

Lawmakers pushing for repeal say the cap hurts local residents and has even prompted some to relocate to lower-tax states.

But a full repeal may be expensive. The SALT limit deduction generated $77.4 billion during its first year, according to the Joint Committee on Taxation, and a full repeal for 2021 may cost as much as $88.7 billion, and more in future years. And Republicans remain largely opposed to any repeal of the SALT cap.

While rumors have circulated about a temporary two-year SALT relief proposal, when asked by reporters, Suozzi said he’s pushing for a long-term plan. “I am still fighting for full repeal,” he said.

The SALT deduction cap has also been a focus for other lawmakers, including House Speaker Nancy Pelosi, D-Calif., who has said it’s an “important priority” in the reconciliation bill.

Speaker Pelosi’s office did not immediately respond to CNBC’s request for comment on the negotiations.

Other lawmakers argue the proposal may primarily benefit wealthy taxpayers.

The top 20% of Americans may receive more than 96% of the benefit of a SALT cap repeal, according to a Tax Policy Center report, affecting only 9% of American households.

In the meantime, several high-tax states now offer SALT cap workarounds for pass-through business owners, allowing some companies to bypass the deduction limit by using a state levy to cover some of the owner’s state income taxes.

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