Why some lawmakers are pushing to repeal limits on state and local tax deductions

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Congressional lawmakers from both sides of the aisle are calling for a repeal of the state and local tax cap, arguing that they hurt middle-class Americans.

On Thursday, representatives led by Rep. Tom Suozzi, D-N.Y.; Rep. Andrew Garbarino, R-N.Y.; and Rep. Young Kim, R-Calif., announced a bipartisan caucus to overturn the so-called SALT cap.

The new group is a sign of increasing pressure to cancel the $10,000 limit on the SALT deductions, which was put in place in 2017 as part of former President Donald Trump’s tax bill. On Tuesday, a group of New York lawmakers sent a letter to House Speaker Nancy Pelosi. D-Calif., reserving the right to oppose any future tax legislation that doesn’t include repealing the SALT cap.

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Business leaders in New York have also sounded the alarm, urging President Joe Biden and Senate Majority Leader Chuck Schumer, D-N.Y., to repeal the cap. In January, Schumer and fellow Democratic Sen. Kirsten Gillibrand from New York introduced their own legislation to due away with the limit.

Gov. Andrew Cuomo, D-N.Y., also recently said that a repeal of the SALT cap would offset tax hikes in the latest state budget plan, which will raise personal income tax rates on New York City millionaires to the highest in the nation.

“It is high time that Congress reinstates the state and local tax deduction so we can get more dollars back in the pockets of so many struggling families especially as we recover from the pandemic,” said Rep. Josh Gottheimer, D-N.J., during a Thursday briefing announcing the bipartisan SALT effort.

Who gets hit by the SALT cap

In 2017, the average SALT deduction was more than $24,000 in Gottheimer’s district in northern New Jersey, he said. The cap put in place thus hurt families that were taking state and local tax deductions larger than $10,000.

“Taxes went up for the families in my district I represent, not down,” Gottheimer said, adding that it meant people and jobs left the state.

Other representatives from high-tax, high cost-of-living states, including New York and California, echoed the sentiment. New York, New Jersey, Connecticut, California and Maryland were the states where the SALT deduction benefitted taxpayers most, according to the Tax Foundation.

Representatives from some of those states argue that the SALT cap hits middle-income families in the districts they represent.

 ”The middle class in my district or in many of the districts here is very different than the middle class in other districts in the country,” said Suozzi. “If you make $100,000, $120,000 or $150,000 in my district, that’s middle class – in other parts of the country, that’s seen as being upper-income.”

Most Americans wouldn’t benefit from SALT cap repeal

While the SALT cap is a top-of-mind issue in some parts of the country, repealing it wouldn’t help most Americans. Instead, those with the highest incomes would benefit the most.

The top 20% of earners would reap more than 96% of the benefits of a SALT repeal, and the top 1% of all earners would see 57% of benefits, according to the Tax Policy Center. The same analysis showed that only 9% of American households would see any benefit from a repeal of the SALT cap.

It is high time that Congress reinstates the state and local tax deduction so we can get more dollars back in the pockets of so many struggling families especially as we recover from the pandemic.
Josh Gottheimer
U.S. Representative, New Jersey

Still, the issue is likely to be a sticking point in Congress as it works on Biden’s $2.25 trillion infrastructure and jobs plan. While some lawmakers — mostly Democrats — strongly support repealing the SALT cap, not all are for the tax break.

There’s also a cost associated with doing away with the cap, which may be difficult to replace. If the cap had been eliminated for the years 2020 and 2021, it would’ve cost $48.9 billion and $88.7 billion, respectively, according to the nonpartisan Joint Committee on Taxation.

Democrats may not be able to accomplish all they want to without the money. White House Press Secretary Jen Psaki said that if lawmakers want to adjust the SALT cap, they would need to find a way to pay for it.

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