Mr Sanders has become the main obstacle to his party leaders’ hopes of restoring the full federal tax deduction for local and state taxes, known as SALT, capped at $ 10,000 by the 2017 tax cuts act. tax and employment. President Nancy Pelosi of San Francisco calls the loss of this deduction “devastating.” Likewise, New York Senator Chuck Schumer, who swore that “one of the first things” he would do as majority leader would be to see that the SALT cap is “dead, gone and buried.”

But not Bernie. Asked directly about “Axios on HBO” last week if he supports this effort, Mr. Sanders proudly raised his progressive colors: “You can’t be on the side of the rich and powerful if you really want to fight for families. of workers. “

It’s an entertaining time for smugglers and Baptists, with two opposing camps – the low-tax Republicans and the leader of the progressive wing of the Democratic Party – finding themselves in the same asshole. Everyone wants to keep the SALT cap, but for very different reasons.

Mr. Sanders rightly appreciates that the SALT deduction is a big tax break for the wealthy, even though the wealthy in question mostly live in blue states. The Center for Fiscal Policy estimates that more than half the benefit of removing the SALT cap would go to households earning $ 1 million or more, and 96% of middle-income households (who earn between $ 52,000 and $ 93,000 per year) “would not get any tax reduction. at all”.

Republicans, meanwhile, oppose the SALT breakup not because they want to punish the rich, but because they want a tax code devoid of special deductions, including what is in effect a federal grant for the politicians of the Blue State in Sacramento and Albany. As long as taxpayers can deduct local and state taxes on their federal returns, they are not paying the full price for the expensive and highly taxable means of their local and state poles.

That’s why Blue State Democratic leaders like New York Gov. Andrew Cuomo and California Gov. Gavin Newsom hate the cap and have been willing to try almost anything to get around it – anything but live within their means. .

Enter Senator Sanders. President Biden’s message has been that his trillion dollars in new spending will be paid for by making the rich pay more. But there’s no getting around the fact that eliminating or widening the SALT cap means lowering taxes for the rich, not raising them. Which leaves the Biden agenda vulnerable to progressive unhappiness.

Income is another complication for Democrats. The Tax Foundation believes that the elimination of the SALT ceiling would mean a 380 billion dollars of loss in federal tax revenues until 2025. Put this in the context of Mr. Biden’s pledge that his US plan for families will not add “a single dime to our deficit.”

A recent Reason magazine item sums up the Democrats’ dilemma well. A party determined to appease both its pro and anti-SALT wings “likely means sacrificing a significant chunk of Biden’s agenda to pay its political allies in New York and California.”

On top of all this, there are the weak Democratic majorities in the House and Senate. Although several Democrats have announced that they will not vote for any Biden plan that does not remove the SALT cap, this passion is generally not shared outside of the blue states with the highest taxes. That’s why the most likely path could be a deal that increases the SALT cap limit to, say, $ 25,000, while also raising the top income tax rate to 39.6% from 37% today. ‘hui.

In other words, a coveted tax deduction for the rich in exchange for a marginal increase in the progressivity of the top tax rate. Which still leaves open a huge question: would Bernie go?

Either way, it prompts Republicans to widen internal Democratic divisions while pushing for a better definition of tax fairness – a definition that doesn’t mean increasingly forcing taxpayers and cluttering the code with special deductions. . Republicans would do well not only to see Mr. Sanders’ offer on the SALT deduction, but also to lift it by calling for the elimination of SALT deductions altogether. While pushing for an eminently dignified Republican compromise: removing a deduction in exchange for a reduction in the highest rate of income.

“It’s a rare time in a divided Washington for Republicans to reach out across the aisle and team up with Bernie Sanders to make the tax code more progressive, but in a way that’s also consistent with the long-term push for a flatter tax code, ”says Scott Hodge, chairman of the Tax Foundation. “But if Republicans compromised, it would undermine both progressivity and good tax policy.

Write to mcgurn@wsj.com.