White House unlikely to support SALT cap hikes as tax fight looms

New Yorkers and Californians seeking a big expansion to the state and local tax deduction when Congress debates a renewal of Donald Trump’s tax cuts next year are unlikely to see their wishes granted, President Joe Biden’s top economic adviser said.

“The president has made it very clear he just doesn’t believe that the wealthiest Americans need another tax break. So I think that principle will guide his approach, or his team’s, approach to the SALT cap,” White House National Economic Council Director Lael Brainard said on a call with reporters, referring to the $10,000 limit on the state and local tax deduction.

Instead, in a second term Biden would focus on increasing taxes on corporations and billionaires, Brainard said. A White House memo released Thursday outlined plans to tax record corporate profits and offshore tax dodgers, while not raising levies on households earning $400,000 or less.

“Tax fairness resonates very strongly with people,” Brainard said. “They don’t understand why somebody who has hundreds of millions of dollars in income pays a tiny share of their actual income relative to a school teacher or a firefighter.”

The SALT cap is one of several tax issues Congress and the winner of November’s presidential election will confront next year, with key portions of Trump’s 2017 tax cuts expiring at the end of 2025. In addition to the $10,000 SALT cap, other measures slated to lapse are the reductions to individual tax rates, a tax break for privately owned business and a reduction in inheritance taxes.

Without strong backing from Biden, the SALT deduction is unlikely to have the political support necessary for an expansion, even if Democrats control the White House and Congress. The break is politically important to Democrats representing high-tax areas in California and near New York City, but has less resonance in other parts of the country where levies are lower and fewer people can claim the write-off.

If Trump wins November’s election, the future of SALT would be even more precarious. Allies to Trump have urged him to lower the $10,000 deduction as a way to offset other tax cuts.

Republicans and some progressive Democrats have criticized the SALT deduction because it is largely claimed by high earners. 

In Congress, the political fault lines are fraught. SALT has vocal support from a group comprised of both Democrats and Republicans — largely representing districts in New York, New Jersey and California. Those same districts often determine which party has a majority in the US House and SALT has repeatedly been a top campaign issue in those areas.

Democrats, and some Republicans, in areas with high property levies where SALT is a valuable tax break have unsuccessfully sought for years to increase the cap, which was included in Trump’s tax cuts to pay for other levy reductions. Prior to that, the tax break had no dollar limit.