The Tax Fight That Could Derail Biden’s Infrastructure Plan

Thursday, April 15, 2021

The Tax Fight That Could Derail Biden’s Infrastructure Plan

A bipartisan group of House members from high-tax states on Thursday launched a caucus focused on repealing the $10,000 limit on state and local tax deductions imposed as part of the 2017 Republican tax law.

The formation of the caucus comes as some Democrats have pressed to include a repeal of the deduction cap in President Joe Biden’s infrastructure legislation, making the issue a potential obstacle to passage of the entire $2.3 trillion package.

“It is high time that Congress reinstates the state and local tax deduction, so we can get more dollars back into the pockets of so many struggling families, especially as we recover from this pandemic,” Rep. Josh Gottheimer (D-NJ), one of the chairs of the caucus, said at a press event announcing the group.

The new Bipartisan SALT Caucus has 30 members, largely from New York, New Jersey and California, with 21 Democrats and nine Republicans joining to start.

The background: The 2017 tax law limited the deductibility of state and local taxes as a way to offset some of the cost of its tax cuts. Most Republicans supported the cap, with GOP leaders arguing that it would help keep the federal government from subsidizing high-tax states and would force those states to lower taxes to stay competitive. Some Democrats cried foul, arguing that the $10,000 cap was a politically motivated effort to punish blue states and limit the services they provide. “The SALT deduction cap was designed to target blue states,” Rep. Mikie Sherrill (D-NJ) told NBC News recently. “We are being punished for running programs that help our citizens.”

Many Democrats have repeatedly sought to undo the limit. But Democratic lawmakers are divided on the tax. “We can say we are for a progressive tax code and for fighting inequality, or we can support the SALT deduction, but it is really hard to do both,” Sen. Michael Bennet (D-CO) told Vox. And Axios reported earlier this month that senior members of the Biden administration view the cap as good policy — a point reinforced by Biden’s leaving it untouched in his infrastructure proposal.

Analysts have made clear that repealing the SALT cap would overwhelmingly benefit high earners. A 2018 analysis by the Tax Policy Center found that only 9% of households would benefit from eliminating the cap and 96% of the tax gains would go to the 20% of households with the highest income. More than half of the tax cuts would go to the top 1% of households.

“This is a tax cut for people with secure jobs and excellent health insurance, working from expensive homes,” analysts at the Brookings Institution wrote last September. “Rather than reversing the cap, there is a strong case for building on the progress made in the TCJA and eliminating the deduction altogether.”

Supporters of repealing the cap insist that the cap hits middle-class residents in their districts. “The middle class in my district or in many of the districts here is very different than the middle class in other districts in the country,” said Rep. Tom Suozzi (D-NY). “If you make $100,000, $120,000 or $150,000 in my district, that’s middle class – in other parts of the country, that’s seen as being upper-income.”

Why it matters: A number of Democrats have said that they would not support an infrastructure bill unless the SALT deduction cap was reversed. Earlier this week, nearly every Democrat in New York’s House delegation wrote to House Speaker Nancy Pelosi (D-CA) and House Majority Leader Steny Hoyer (D-MD) saying that they “reserve the right to oppose any tax legislation that does not include a full repeal of the SALT limitation.” California Democrats are reportedly also working on a letter about the issue.

Proponents of a SALT cap repeal have more than enough votes to threaten the fate of Biden’s infrastructure plan. But repealing the cap would increase the cost of the overall legislation, adding another challenge to getting the infrastructure bill done. White House Press Secretary Jen Psaki said Thursday that lawmakers advocating repeal would have to figure out how to pay for it. It would cost $88.7 billion to repeal the cap in 2021, according to an estimate from the Joint Committee on Taxation.

Republicans, meanwhile, see an opportunity to score some political points. “Democrats are insisting on a massive tax break for the wealthy, while holding out their support for President Biden’s $2 trillion tax hikes on blue-collar workers and families,” the House Ways and Means GOP said in a post Thursday. “Repealing the cap on SALT deductions will give liberal governors and mayors a green light for across-the-board tax hikes on low- and middle-class families.”

Is This How a Bipartisan Deal on Infrastructure Gets Done?

Republicans and Democrats may be far apart on President Joe Biden’s $2.3 trillion infrastructure proposal, with GOP lawmakers criticizing the size and scope of the plan as well as the tax increases that would pay for it. On Thursday, however, comments from a senator close to the White House pointed toward a path forward on the effort, though one that would result in a much smaller spending package to win bipartisan support.

Sen. Chris Coons (D-DE) laid out for reporters a fairly simple strategy for Democrats to break what could become a stalemate on infrastructure: pass a bipartisan bill containing everything both parties can agree on, totaling somewhere between $600 billion and $800 billion, and then a second bill containing everything else via budget reconciliation, with only Democratic support.

“We are trying to get $2 trillion worth of infrastructure and jobs investments,” Coons said, according to Politico. “Why wouldn’t you do 800 billion of it in a bipartisan way? And then do the other 1.2 trillion, Dems-only, through reconciliation?”

The numbers could work out, at least for the bipartisan bill. On Wednesday, Sen. Shelley Moore Capito of West Virginia said that Republicans were considering a narrower, more targeted infrastructure bill worth somewhere between $600 billion and $800 billion.

According to Politico, total spending in the Biden plan on the kind of infrastructure Republicans are willing to support, mostly basics such as roads, bridges and airports, comes to $621 billion — indicating that there is plenty of room for agreement on at least that part of the infrastructure plan.

But plenty of hurdles ahead: Republicans may be less enthusiastic for such an approach knowing that by providing bipartisan support for a quite substantial infrastructure package, they will be clearing the way for passage of a much larger spending bill that contains all kinds of things they don’t support, including billions of dollars for things like electric cars, elder care and paid leave. Democrats may have their own concerns, including worries that the second, larger bill either fails to pass or gets severely stripped down to appease moderates within their own caucus.

And then there’s the question of how to pay for a bill, even if it’s scaled back to focus on roads and bridges. Republicans show no signs of deviating from their opposition to tax increases, while Democrats are unlikely to accept a plan that covers the costs entirely with user fees.

As Sen. Mitt Romney (R-UT) put it Thursday, “We’ll be able to come to agreement on what needs to be done. How to pay for it will be where we find the greatest challenge.”

Americans Like What They See in Biden Infrastructure Plan

A new poll released Thursday adds to the growing body of evidence showing that Americans like President Joe Biden’s plan to go big on infrastructure spending.

A New York Times-Survey Monkey poll conducted from April 5 to 11 found that nearly two thirds (64%) of respondents said they approve of the American Jobs Plan, Biden’s proposal to spend $2.3 trillion on a wide variety of issues, ranging from highways and bridges to green energy and child care. Democrats were nearly universal in their approval (97%), and independents were also enthusiastic (72%). Republicans were strongly negative, however, with 70% saying they disapproved.

As other polls have indicated, some parts of the Biden proposal do win support from Republicans. Majorities of GOP respondents approved of the plan’s effort to improve ports, waterways and airports; to repair highways, bridges and major roads; and to make high-speed broadband internet available nationwide.

“Republicans don’t support the American Jobs Plan over all, but there are some elements of it that they actually love,” pollster Laura Wronski said.

Republican lawmakers plan to build opposition to the proposal by focusing on taxes, according to the Times’ Jim Tankersley, Ben Casselman and Emily Cochrane. “Republican leaders hope they can ultimately turn some voters, particularly independents, against the plan by attacking Mr. Biden’s proposal to fund it with tax increases on corporations,” they say.

Democrats counter that most people think businesses and the rich don’t pay their fair share and will be happy to support tax increases on them to help pay for major new public investments.

Jobless Claims Drop and Retail Spending Soars in Positive Signs for Economy

Two reports Thursday showed signs of marked improvement in the economy, raising hopes that a robust recovery is now underway as vaccine distribution accelerates and businesses reopen in many parts of the country.

New jobless claims in state unemployment systems hit a pandemic low last week, the Labor Department announced, with 576,000 people filing for benefits, a decline of nearly 200,000 from the week before. Another 132,000 people applied for Pandemic Unemployment Assistance, the federal program that aids workers who are normally unable to get benefits, bringing the total of new filings for the week to 708,000.

Meanwhile, retail spending soared 9.8% in March, the Commerce Department said, the biggest increase since last May, when the economy kicked off its first rebound from the initial stage of the pandemic. The big jump in spending was driven in part by the surge in pandemic relief payments that began in March, with payments as high as $1,400 per person sent to millions of Americans. Record high household savings also likely contributed to the spending spree.

“Stellar jobless claims plus off the charts retail sales packs a positive one two punch and sends strong signals that the economy is full steam ahead toward recovery,” Mike Loewengart of eTrade told The Washington Post.

Adam Kamins of Moody’s Analytics told the Associated Press that the economy is “really kicking into that next gear now. Things are moving more decisively in the right direction than at any time in the past year.”

Still, though the economic figures show clear signs of improvement, conditions remain depressed in many sectors, especially when it comes to employment. Before the pandemic, half a million unemployment filings in a week would have been a disaster.

Which Republican Will Replace Brady on Ways and Means?

The race is on to replace Rep. Kevin Brady (R-TX), who announced yesterday he would retire at the end of his term, as the top Republican on the House Ways and Means Committee. Politico’s Olivia Beavers reports that Rep. Devin Nunes (R-CA), the most senior Republican on the committee after Brady, is seen as the front-runner. Others who will or could vie for the job include Reps. Vern Buchanan (R-FL), Adrian Smith (R-NE), Jason Smith (R-MO) and Mike Kelly (R-PA).

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The Tax Fight That Could Derail Biden’s Infrastructure Plan