WASHINGTON – A bipartisan group of lawmakers is pushing to remove the cap on federal tax deductions for state and local taxes (SALT), but many argue that such a move would hugely favor the wealthy.
For decades, the ability to deduct SALT has been a significant tax cut for taxpayers who itemize deductions on their federal income tax returns. However, the Tax Cuts and Jobs Act (TCJA) of 2017 limited the deduction for SALT payments to $ 10,000 per year. Taxpayers can no longer deduct individual state and local income or property tax payments that exceed that amount.
Blue states, especially those with higher individual income and property tax rates, have opposed this limit, and some have even tried to create fiscal maneuvers to avoid this limitation.
Last year, Democrats proposed lifting the SALT deduction cap for 2020 and 2021 as part of a COVID relief package. They argued that lifting the cap would bring relief to those hardest hit by the virus, especially in devastated cities like New York.
A growing number of House Democrats have recently indicated that they would not support Biden’s infrastructure and fiscal plan unless the cap is repealed.
Last week, more than 30 bipartisan members of the House formed the SALT Caucus to push for the repeal of the $ 10,000 limit approved in TCJA. Members of the caucus stated that the measure would provide a tax break for “middle-class working families.”
“It is time for Congress to reinstate the state and local tax deduction, so that we can put more dollars back into the pockets of so many families in distress, especially as we recover from the pandemic,” said SALT Caucus co-chair, Representative Josh Gottheimer (DN.J.) said in a statement. The group said it would look for ways to restore the SALT deduction.
Another caucus co-chair, Rep. Young Kim (R-California) stated that Californians have been burdened by high state and local taxes. Your district would pay on average more than $ 640 million in fiscal year 2022 due to the SALT cap.
However, according to estimates by the Tax Policy Center, nearly all of the benefits from repealing the SALT limit of $ 10,000 would go to the top quintile, with the top 1 percent getting an average tax cut of $ 33,100 and the 0.1 percent receiving nearly $ 145,000.
Lifting the SALT cap would essentially not benefit the middle class, contrary to what Democrats and some Republicans have argued, “stated a Brookings Institution report last year. “Only 4 percent of the profit would go to the middle class,” for an average annual tax cut of just under $ 27. “
Critics argue that lifting the SALT limit forces people in low-tax states like Tennessee and Texas to subsidize high-tax states like California and New York.
Simply lifting the SALT limit, as many Democrats propose, is not a solution, according to the left-leaning Institute for Fiscal and Economic Policy (ITEP).
“While the SALT deduction cap is problematic, repealing it without further reforms would result in increased tax breaks for the wealthy,” Steve Wamhoff, director of federal tax policy at ITEP, said in a February report. He proposed replacing the SALT limit with a broader limit of tax breaks for the wealthy.
Last year, ITEP estimated that repealing the cap would cost more than $ 90 billion in a single year, with 86 percent of the benefit going to the richest 5 percent.
Progressive Rep. Alexandria Ocasio-Cortez (DN.Y.) criticized efforts to hold Biden’s infrastructure plan hostage to demands to repeal the SALT cap.
“I don’t think we should hold the infrastructure package hostage for a full 100 percent repeal of SALT, especially in the case of a full repeal,” Ocasio-Cortez told reporters on April 15. “Personally, I can’t. emphasize how much I think it is a gift for the rich.
However, he did not rule out a negotiation on the revision of the limit.
“I think you have to have a conversation about the limit itself, and at what level is it appropriate, and where can we help families that are really deeply affected,” he said. “At the other extreme, I don’t think a total repeal is fair.”
In a letter to shareholders dated April 7, Jamie Dimon, president and CEO of JPMorgan Chase, pointed to five states (California, Connecticut, Illinois, New Jersey and New York) that continue to require “unlimited” SALT deductions, saying that while those five states “would get 40 percent of the benefit,” more than 80 percent of those deductions “would accrue for people who earn more than $ 339,000 a year.”
–
