New York Democrat Tom Suozzi speaks about the State and Local Taxes (SALT) caucus during a press conference outside the U.S. Capitol in Washington, DC, on Thursday, April 15, 2021.
Sarah Silbiger | Bloomberg | Getty Images
Lawmakers are demanding an end to the $ 10,000 cap on state and local tax deductions.
That could threaten President Joe Biden’s new tax plan before it’s even announced.
The so-called SALT deduction limit was introduced in 2017 as part of the signature tax legislation of former President Donald Trump. It hit the richest Americans most of all, as well as those in states with high taxes and high cost of living – generally blue democratically ruled states.
Removing the SALT cap would come at a cost if Democrats push for multiple laws worth trillions of dollars.
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Biden just released his $ 2.25 trillion infrastructure plan, and his upcoming tax legislation, due to be unveiled in a speech to Congress on Wednesday night, could also top $ 1 trillion. According to the impartial Joint Tax Committee, lifting the cap would cost around $ 88.7 billion and more in 2021 and subsequent years.
Still, the SALT cap is a sticking point for Democrats and some Republicans. More than 20 Democrats and nine Republicans have joined a bipartisan caucus that has pledged not to vote for laws that do not include lifting the SALT cap.
“For high tax congressmen and senators, if you vote for the plan without repealing SALT, they will vote against the interests of their constituency,” said Douglas Schoen, a Democratic strategist, adding that it is a particularly important issue for those who can be re-elected in 2022. “I am not convinced that this is an easy vote for them.”
Both bills are new and are likely to change as lawmakers negotiate the details, which can take months. The gap over the SALT cap has already delayed the infrastructure package and could also derail Biden’s tax plan, especially given the small democratic majorities in Congress.
“They have a pretty good bill that they need every Democrat on,” said Ed Slott, CPA and founder of Ed Slott & Co. “If they have Democrats who drop out on it, they won’t get anything.”
He added that a lot of people who think they would benefit from lifting the SALT cap would not get much of the deduction – they would pay roughly the same due to the alternative minimum tax, he said.
Of course, those who advocate lifting the SALT cap say it would give families in the counties they represent a tax break.
Last week, New Jersey Democratic MP Josh Gottheimer sent Treasury Secretary Janet Yellen a letter calling for the SALT cap to be lifted. He suggests that the SALT cap cut could be paid for through increased IRS audits.
At some point, the legislature will have to decide the long-term fate of the SALT ceiling – the provision and other provisions from the Tax Act of 2017 will expire in 2025.
“Now or three years from now, this debate needs to take place,” said Scott Roberti, director of government policy at Ernst & Young.
Who will benefit from a SALT cancellation?
Republicans are unlikely to vote for a bill that will raise taxes. Given the Democrats’ narrow lead in the House and Senate, it is important that the gap over the SALT cap be resolved.
Democrats against lifting the SALT cap say it would mean a tax break for the rich and do little to help most Americans.
“I don’t think we should hold the infrastructure package hostage for a 100% total repeal of SALT, especially in the event of a total repeal,” Alexandria Ocasio-Cortez, DN.Y., told reporters during a briefing Thursday. “Personally, I can’t say how much I believe this is a giveaway for the rich.”