The Tax Fight That Could Derail Biden’s Infrastructure Plan

By Yuval Rosenberg

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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