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Democrats are feuding over tax breaks for people earning up to $550,000: 'We're really talking about folks who are in the top 2%'

Sens. Bob Menendez, D-N.J., right, and Bernie Sanders, I-Vt., arrive for a news conference on the state and local tax (SALT) deduction.

  • Senate Democratic negotiations on a tax break for well-off Americans are faltering.
  • Bernie Sanders and Robert Menendez disagree on where to set income thresholds for SALT relief.
  • Many Democrats are uneasy with the benefit since it typically goes to households earning six figures or more.

A major fight is brewing among Senate Democrats that will determine which well-off Americans receive a tax cut in President Joe Biden’s $2 trillion social spending plan.

In recent weeks, Sen. Bernie Sanders of Vermont and Sen. Bob Menendez of New Jersey teamed up to map out a proposal to provide relief from the $10,000 cap on the state and local taxes taxpayers are able to deduct from their federal bill (SALT). Despite Democratic pledges to tax the rich, it’s bound to scale back tax increases on wealthier households. Many Democrats are uneasy with the measure and it has exposed them to intense Republican attacks that Biden is handing blue-state millionaires a hefty tax break.

The pair’s efforts are hitting a brick wall. Menendez and Sanders separately told reporters in recent days that they’re sharply diverging on an income cutoff for taxpayers to qualify. The New Jersey Democrat has floated unlimited SALT deductions for individuals earning up to $550,000, while Sanders want to lower the threshold to $400,000. 

“We’re really talking about folks who are in the top 2%, whether they’ll receive a tax increase or cut,” Andy Boardman, a research assistant at the Urban Policy Institute, told Insider.

Few details of the Menendez-Sanders plan have been made public, making finer points like a potential phase-out harder to scrutinize. But a higher income threshold ensures even larger benefits flow to the wealthy, which many Democrats are desperate to avoid.

“It becomes more costly, more regressive,” Mark Goldwein, senior policy director at the Committee for a Responsible Federal Budget, told Insider. The CRFB has projected that 90% of the benefit would go to households in the top fifth of the income spectrum if the threshold was set at $500,000.

Boardman added that another clash stemmed from whether any new money raised should go towards financing other safety net provisions like expanded Medicare benefits as Sanders wants. “We’re in this sort of irresistible force meets the immovable object phase of the negotiation.”

Where SALT talks go from here

Democrats from high-tax states like New York and California are pushing to roll back the SALT cap, unwinding part of the 2017 GOP tax cuts in the process. House Democrats approved legislation to allow up to $80,000 in SALT write-offs through 2030, but that’s likely to undergo major changes in the Senate. Many in the party are anxious about strongly tilting the bill’s benefits in favor of higher-earners.

Sen. Mark Warner of Virginia, a member of the tax-writing Senate Finance Committee, said SALT adjustments designed in a “way too generous way” would allow well-off Americans to disproportionately reap tax benefits, particularly after unwinding the 2017 tax cuts was taken off the table. “That’s pretty problematic for me,” he told Insider.

“I supported the concept Bernie put forth, that basically there was a cap but it would diminish as income went up. I don’t think it should be unlimited,” Sen. Angus King of Maine told Insider.

Senate Democrats are racing to approve the social legislation by Christmas Day, but the escalating SALT dispute threatens to derail their timetable. It prompted Senate Majority Leader Chuck Schumer to call a meeting in his Capitol Hill office on Tuesday afternoon in hope of inching closer to a resolution.

Sanders, Menendez, and King, as well as Sens. Michael Bennet of Colorado and Elizabeth Warren of Massachusetts were among the eight Democrats that attended. They left with no sign of a deal.

A Menendez spokesperson told Insider that “any attempt to raise revenue is a non-starter” for the New Jersey Democrat, adding “a revenue-neutral proposal on SALT is the only viable path forward.”

Then a Bennet spokesperson described the meeting as “productive” and reiterated the Colorado Democrat’s belief that the House SALT measure is “unacceptable.”

“Senator Bennet argued we need to make the bill’s tax provisions more progressive,” the spokesperson told Insider.

Despite the obstacles, key negotiators recognize that some deal must be struck if they want to pass the package. “We got to reach compromise,” Sanders told Insider. “A lot of people feel good about it.”

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