Politicians from New York, New Jersey and other high-tax states may be making a lot of noise, but the new $10,000 cap on deductions for state and local taxes, or SALT, isn’t going anywhere any time soon.
Some 30 Democratic members of Congress, joined by one Republican, last month introduced a bill that would eliminate the cap on SALT deductions introduced in the 2017 tax overhaul. And New York Governor Andrew Cuomo formed a coalition of Democratic counterparts from high-tax states to push for a change.
Yet their efforts are likely futile, lobbyists and tax policy experts say.
The problem: Republicans have no desire to tinker with the signature legislative achievement of the Trump administration. And many Democrats don’t want to eliminate the cap, which would be seen as a massive tax break for the wealthy, at a time when the progressive left is gaining popularity.
“Simply lifting the cap with no other reforms is just an additional windfall for high income taxpayers on top of the other cuts” from the GOP tax law, said Seth Hanlon, a senior fellow at the left-leaning Center for American Progress, who helped devise tax policy for President Barack Obama.
The Tax Cuts and Jobs Act gave a large tax cut to corporations and wealthy taxpayers. It also limited to $10,000 the amount households could deduct for property taxes and state and local income taxes, a measure that hits residents of high-tax -- and Democratic -- states like New York, New Jersey, Connecticut and California harder than others. The change rankled Democratic lawmakers who saw it as a deliberate political assault.
A Treasury Department analysis released last week concluded that about 10.9 million filers had to cap their deductions for state and local taxes, paying an extra $323 billion in taxes. Other provisions in the law benefited filers, and many of those 10.9 million likely received a net tax cut.
Thirty of the 40 current co-sponsors on House version of the bill released in February, dubbed the “Stop the Attack on Local Taxpayers” (or “SALT”) Act, are from New York, New Jersey or California. The bill would try to offset the cost of repealing the SALT cap by reintroducing the 39.6 percent marginal tax bracket, which the 2017 law eliminated.
Representative John Larson, a Connecticut Democrat who co-sponsored the bill, said he expects the House Ways and Means Committee to consider adjustments to the SALT cap, but that movement would be slow.
Senate Finance Chairman Chuck Grassley, a Republican from Iowa where taxes are lower, quickly declared any effort to repeal the cap was futile.