Tax deductions

Democrats still hope to restore state tax deductions lost under Trump

Democrats are struggling to agree on how to lift the Trump-era tax deduction cap that hit many Californians hard, one of the latest unresolved issues in their spending bill social and climate.

Democrats are expected to ease the $ 10,000 annual cap on state and local taxes that can be deducted from federal returns. The so-called SALT cap was enacted in the Republican tax bill of 2017.

But progressive Democrats in the House and Senate are at odds over how to do it.

The final proposal, which is unlikely to be completed until the end of the month, could have a significant effect on Californians and residents of other high-tax states, including New York and New Jersey. Because of the importance of politics to lawmakers in those states, many Democrats believe the bill will not get through the House without some form of SALT relief.

The dueling proposals released on Wednesday highlight the tense negotiations surrounding the welfare spending bill, even as Democratic House leaders try to schedule a vote by the end of the week.

House Democrats, led by Reps Tom Malinowski of New Jersey – perhaps the state hardest hit by the cap – and Rep. Katie Porter (D-Irvine), would raise the cap to $ 72,500 up to in 2031.

Porter calls it a deficit neutral proposal that “would reverse the harshest consequences of Trump tax law” by ensuring people aren’t hit by the cap because of where they live.

The figure of $ 72,500 was chosen because, given the complex way Congress calculates the cost of its bill, the policy would cost the federal government nothing. This is because under current law the Trump-era cap is expected to end in 2025. This plan would keep a cap in place longer, but at a higher threshold.

But Sen. Bernie Sanders (I-Vt.) Criticized the plan, saying it would cost more than $ 50 billion a year and “deliver 37% of its benefits to the richest 1% … giving the richest people of the country a tax break. “

There are also other criticisms of the Senate. Senator Michael Bennet (D-Colo.) Said the House plan “cuts taxes for millionaires and billionaires on the backs of low- and middle-income families. We should settle this in the Senate.

Sanders and Sen. Robert Menendez (DN.J.) released an alternative plan that would remove the cap for families earning less than $ 400,000 a year.

“We still need to make a few more adjustments here” to the income level, Sanders said. But it won’t be “for millionaires or billionaires.”

Porter criticized the proposal because it said it would always benefit wealthy hedge fund managers and entrepreneurs who find ways to avoid reporting their annual income.

“I don’t think – with great respect for Senator Sanders’ commitment to making sure big business and the super rich pay their fair share – I don’t think his proposal does what he thinks it does. done, ”she said.

Whatever tax break the House adopts in social spending, it will still be subject to change in the Senate in the coming weeks.

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