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The SALT proposal in the bill would increase the cap to $ 72,500 until 2031

A $ 10,000 cap on the federal deduction for state and local taxes that individuals pay would increase to $ 72,500, with the tax relief limit extended beyond its original expiration date, under the latest version of a huge budget bill that Congressional Democrats have been working on.

The cap on the tax deduction, imposed as part of the Republican-led 2017 tax overhaul, was set to expire at the end of 2025. The legislation that House Democrats released on Wednesday would extend it until 2031 and would apply the new higher limit from tax year 2021.

The latter proposal would cost the federal government about $ 300 billion through 2025, including about $ 240 billion for people earning more than $ 200,000 a year, according to the Committee for a Responsible Federal Budget estimates.

The SALT deduction has become a sticking point as Democrats try to reach a compromise within their party on the bill. It is generally wealthy households that benefit the most from the tax break and this does not suit some party lawmakers.

Democrats have a narrow margin to pass the bill in the House – they cannot afford to lose more than three votes. And they cannot lose a vote in the Senate if they want to pass legislation through this chamber. This assumes that no Republican votes for the legislation.

For estates, trusts and married people filing separate income tax returns, the limit would be $ 36,250 under the new proposal. The current law sets the limit for married people filing separately at $ 5,000.

Two Senators, Bernie Sanders, an independent from Vermont who caucuses with Democrats, and Bob Menendez, a Democrat from New Jersey, backed a proposal on Wednesday that would leave the $ 10,000 cap permanently in place but exempt households from it. earning somewhere in the stadium from $ 400,000 to $ 550,000.

Over 10 years, they said this approach would be “deficit-free,” meaning it would not add to the country’s budget deficits.

Menendez and Sanders have both criticized an option that emerged in Tuesday’s negotiations that would have involved suspending the cap for five years and then reimposing it.

Sanders said Wednesday that the $ 10,000 cap was too low and unfair for middle-class families, but he again spoke out against repealing the cap altogether, saying it would be a boon to the wealthy.

While Sanders described the $ 72,500 cap proposal as an improvement over removing the cap altogether, he said it would remain expensive and generate disproportionate gains for high earners.

Menendez, from one of the states with a larger share of taxpayers likely to benefit from the lifting of the cap, said he was confident Democrats would come to a compromise that would cancel the cap. “We are optimistic that we will soon be able to reach an agreement to solve this problem,” he said.

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