There has been a lot of discussion about what’s in President Joe Biden’s $1.8 trillion American Families Plan and who will pay for it. However, there is one notable omission in the plan that could derail the entire package — and that is the president’s unwillingness to omit the SALT tax deduction instituted by the American Tax Cuts and Jobs Act.
About twenty Democrat in the House of Representatives have publicly stated that they would not pass the American Families Plan without this revocation. If even just a handful of these lawmakers followed through on their threats, the bill wouldn’t even get past the House of Representatives let alone pass the Senate.
Democrats have offered various “acceptable” reasons to support lifting the deduction. Some claim that it would provide states with additional income that could then be used to help those in need. SALT has impacted blue states with high state tax rates negatively, causing a loss in revenue as the wealthy move to states with a lower tax rate.
Democrat lawmakers also allege that the SALT limitation was put in place by former President Donald Trump and Republican lawmakers in order to punish blue states with high tax rates. Even so, the evidence shows that lifting SALT limits would benefit the wealthy and ultra-wealthy people that progressives claim should be “held accountable.”
What’s more, the Tax Policy Center notes that repealing the SALT deduction would cost the federal government close to $90 billion in lost revenue, right at a time when the government is scrambling to come up with the money to cover progressive programs.
The odds of House Democrats backing down on their demand to remove the SALT deduction are slim. Blue states desperately need the extra funds, and there is no way the rich will simply remain in states with high tax rates just out of the goodness of their hearts. There is a chance that Democrat lawmakers will opt to add the removal of SALT limitations to the bill in order to pass it. However, such a course of action could imperil the bill in the Senate.
Moderate Democrats such as Sen. Joe Manchin have voiced concern about how the government will pay for the American Families Plan, and many of these same senators oppose big tax hikes proposed by fellow Democrats.
If the federal government opts to ditch the extra revenue brought in by the SALT limitations, it would need to offer a plan for coming up with extra cash — or risk losing support for the bill. Every single Democrat senator needs to be on board for the bill to pass, putting both House Speaker Rep, Nancy Pelosi and Senate Majority Leader Chuck Schumer in a bind as they struggle to shore up support.
