The treatment of state and local tax deductions will be the “largest hang up” for Republican efforts to revamp the individual side of the tax code, Senator Tim Scott of South Carolina said Friday.
Scott, a member of the tax-writing Senate Finance Committee, said he expects the panel’s tax bill will repeal the so-called SALT deduction entirely. But the House -- where roughly two dozen Republican members want to preserve the break in some form -- will likely include an income cap on it, “in the $200,000 to $250,000 range,” he said.
House Republican leaders met Thursday to discuss a possible accommodation for those members, who represent districts in high-tax states, including New York. Representative Peter King of Long Island and others have suggested phasing the deduction out above adjusted gross incomes of $400,000.
“Watching the debate today in the House, it appears they’re going to land somewhere in the middle of that,” Scott said. His remarks came during a panel discussion at a policy meeting for conservative donors organized by the Koch political network at the St. Regis Hotel in New York.
The debate over the state tax break reflects the challenge bedeviling Republican leaders. Full repeal of the SALT deduction is estimated to raise more than $1 trillion that could help pay for deep tax rate cuts for businesses and individuals. But capping SALT instead would greatly reduce that savings, making it more difficult to write a revenue-neutral tax bill.
At the same time, including full SALT’s full repeal in the bill would threaten some middle-income families with tax hikes and imperil the votes of several Republicans in high-tax states, including New Jersey and California.
Mortgage-Interest Deduction
Scott said he expects debate over whether to modify the mortgage-interest deduction -- by capping it at home loans of up to, say $650,000 or $750,000. The deduction is currently capped at loans up to $1 million for married couples -- and the politically influential National Association of Realtors has opposed changes in the past. The tax framework released last month by the White House and GOP leaders says tax breaks for home mortgage interest and charitable contributions would be retained.
“Capping the mortgage interest deduction amounts to a de facto tax increase on current and future homeowners and puts homeownership further out of reach for prospective buyers,” NAR said in a recent statement. “We would have strong objections over any effort to do so, as would the 1.2 million Realtors we represent.”
“It’s going to be important that we get that right,” Scott said, referring to the mortgage interest deduction. He said he doesn’t expect any changes to the deduction for charitable giving or to the current exclusion of employer-sponsored health insurance from taxable income.