By Joseph De Avila 

More than a dozen New York Democratic lawmakers sent a letter to U.S. House leadership Tuesday asking for a full repeal of the cap on state and local tax deductions, adding pressure to negotiations over the Biden administration's proposed infrastructure plan.

The administration has called for paying for its infrastructure package by raising taxes on corporations. A growing number of House Democrats say any proposed changes to the tax code should include a full restoration of the SALT deductions.

Republicans largely oppose the infrastructure proposal, and Democrats -- who hold a seven-seat advantage in the House of Representatives -- can afford to lose only a few votes on any legislation. That has given the growing group of lawmakers pushing for a repeal of the SALT cap significant influence on negotiations over the infrastructure package.

"This issue is so critical to our state and our constituents that we will reserve the right to oppose any tax legislation that does not include a full repeal of the SALT limitation," said the New York lawmakers' letter, which was viewed by The Wall Street Journal. Seventeen members of Congress from the state signed the letter.

The Trump administration approved the $10,000 cap on SALT deductions as part of broader tax changes in 2017. Previously, there was no cap on such deductions. The cap on deductions disproportionately affected tax filers in high-tax states like New York, New Jersey and California, whereas studies have shown that the Trump tax law resulted in a net tax reduction for most tax filers.

Many Republicans support the SALT cap and say it helps prevent the federal tax code from being used to subsidize high taxes levied by state and local governments.

Democrats who oppose the SALT cap said it unfairly punishes blue states for having higher property and income taxes that are used to pay for costly services like healthcare and transportation. New York's population would be about 104,000 higher if the SALT cap were eliminated, according to a study by New York state and the Nelson A. Rockefeller Institute of Government, a public-policy think tank.

New York Rep. Tom Suozzi, a Democrat and one of the main proponents of repealing the cap, said restoring the full deduction was an issue of fairness and would improve the lives of middle-class families.

"Middle class in New York and New Jersey and Connecticut is very different than it is in Oklahoma and Arkansas and Tennessee," Mr. Suozzi said. "If somebody makes $150,000 in the tri-state, you are middle class."

When asked for comment, a spokesman for House Speaker Nancy Pelosi (D., Calif.) referred to comments she made earlier this month where she said that she hoped to include a repeal of the SALT cap in the infrastructure bill.

"I'm sympathetic to their position," Mrs. Pelosi said. "I would say that I would withhold any comment about whether you're gonna vote for a bill or not until you see what the bill is."

Senate Majority Leader Chuck Schumer (D., N.Y.) also supports repealing the SALT cap, and White House press secretary Jen Psaki has said the Biden administration would be happy to discuss with lawmakers a SALT repeal and ways to make up for the lost revenue.

Some studies show that a repeal of the SALT cap would disproportionately benefit the wealthy. The top 1% of earners would receive more than half of the tax cut if the deduction were fully restored, according to an analysis by the Tax Policy Center, a Washington research group.

Republican Minority Leader Mitch McConnell, a supporter of the cap, said repealing it is "designed to overwhelmingly benefit wealthy residents of blue states" during a speech Monday on the Senate floor.

Democratic Rep. New Jersey Rep. Josh Gottheimer, who supports repealing the cap, rejected that argument.

"I know people think this is just an issue that affects just the very well-to-do," Mr. Gottheimer said in an interview. "But that's not true. It hits the middle class where we live."

While some Democratic lawmakers like Mr. Suozzi have drawn clear lines in the sand and say they won't support tax changes without a full restoration of the SALT deduction, others have left room for negotiating.

"We can compromise on this issue. It's not an all-or-nothing situation," said New Jersey Rep. Bill Pascrell, a Democrat, who supports the repeal.

But, he said, if "I feel like we are being ignored, our position, then all hell is going to break loose and the possibility of us not voting for it."

Write to Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

April 13, 2021 18:45 ET (22:45 GMT)

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