East Coast lawmakers dot Congress with pleas for SALT tax relief
WASHINGTON – Congress may soon have an opportunity to restore tax breaks that would particularly benefit Americans living in high-income places, and government spending too.
For more than a century, taxpayers have been able to deduct the amount they spent on state and local taxes, known as SALT, from the income on which they had to pay federal taxes. But a Republican-controlled Congress changed that in 2017, limiting the SALT deduction to $ 10,000.
“In Bergen County,” said US Representative Josh Gottheimer, a Democrat from New Jersey, in an interview with States Newsroom, “our median property taxes are over $ 15,000 a year. So that gives you an idea of why a $ 10,000 cap increases taxes for the majority of my constituents. “
Gottheimer is one of the chairs of the SALT Caucus, a bipartisan group of more than 30 House members working to restore the full deduction.
He and U.S. Representative Bill Pascrell, another Democrat from New Jersey, went so far as to say they wouldn’t support any major changes to the federal tax code – a top priority for President Joe Biden – if they don’t reverse SALT changes.
Or, like Gottheimer like to say: “No SALT, no dice.”
The “summer of SEL”
Meanwhile, US Representative Mikie Sherrill, another Democrat from New Jersey, is hosting a series of events to draw attention to the issue, which she calls “the summer of SALT.”
This included bringing Randi Weingarten, president of the American Federation of Teachers, to her district to join with firefighters, realtors and local officials in calling for the cap to be repealed.
Behind the scenes, Sherrill met with key lawmakers, including US House Speaker Nancy Pelosi, about the issue. Sherrill has made it widely known to his colleagues that this is one of his top priorities in the upcoming budget negotiations.
“Before the 2017 tax bill that created the cap, 893,000 New Jersey households earning less than $ 100,000 per year benefited from the SALT deduction. 77,000 of these households are in my district, ”Sherrill said in an emailed statement. “I have no doubts that we are on the right track to repeal the cap and provide tax relief for our teachers, first responders, healthcare workers and seniors.
The best chance so far to repeal the SALT deduction cap appears to be in legislation that Senate Democrats are preparing to work on following the conclusion of debate on the infrastructure bill. This bill will focus on parts of Biden’s plans for the economy and families that did not fit into the infrastructure bill.
Democrats can pass this legislation by simple Senate majority, rather than the standard 60-vote qualified majority, using a process called “reconciliation” that is unlocked by instructions in a budget resolution. Many Democrats, especially in the House, have said they will only vote for the infrastructure package if the reconciliation bill is also passed by the Senate.
US Senator Bernie Sanders of Vermont is leading negotiations on the reconciliation bill. Sanders was initially reluctant to include a repeal of the SALT deduction cap in the reconciliation, but his position appears to have softened.
He included $ 120 billion for SALT-related changes in an earlier version of the reconciliation bill that came with an overall price tag of $ 6 trillion.
That $ 120 billion is not enough to cover a complete repeal of the SALT cap, but it could be enough to raise the cap or target it to certain income brackets.
We do not know if this $ 120 billion is still in the reconciliation package that senators are negotiating behind closed doors. Sanders has since agreed to a $ 3.5 trillion plan, but details of the scaled-down deal are not yet public.
Cost of repeal
The gigantic costs of repealing the SALT cap make it a tough sell.
The Tax Foundation, a Washington think tank, estimates that repealing the SALT tax deduction would cost the federal government $ 380 billion.
“Most of the benefits at the federal level would go to the highest earners,” says Erica York, Tax Foundation economist. The richest 1% of taxpayers would see their take-home pay rise by around 2.8%, while the benefit for the poorest 80% of taxpayers would be negligible, the foundation said.
It’s hard to reconcile with the goal of the reconciliation bill, which is to ease the burden on low-income and middle-class Americans, she argues.
“When we’re thinking about how best to use $ 380 billion and want to do something that helps low-income households, giving a tax cut to the richest 1% doesn’t seem like the right fit,” York says .
Besides the political arguments, the SALT deduction is a more important political issue in some states than in others.
When Republicans capped the SALT deduction in 2017, they also made changes that made it easier for people to file taxes without ever worrying about how much they paid in state and local taxes. They did this by almost doubling the standard deduction, from $ 6,500 to $ 12,000 for individual filers. (Figures are adjusted annually for inflation.)
As a result, the percentage of taxpayers nationwide who took advantage of the SALT deduction fell from 25% in 2017 to 10% the following year, according to the Tax Policy Center.
The effect varied considerably from state to state. In Maryland, SALT deductions were 2.5% of its taxpayer’s adjusted gross income, the highest in the country. Wyoming had the lowest, less than 0.5%.
But along with Maryland, the jurisdictions where residents benefited the most from the SALT deduction were (in order) the District of Columbia, Virginia, California, New Jersey, Oregon, Hawaii, Utah, Georgia and New York, according to the Tax Foundation.
In Congress, that means lawmakers pushing for the repeal of the SALT cap are primarily from New Jersey, New York and California. A few lawmakers in Maryland, Illinois and Washington, DC, are also involved.
Local schools, services
But the debate over SALT deductions is not just about the benefits for individual taxpayers; it is also the best way to deliver state and local government services.
This is why leaders of local governments, as well as unions of public employees like teachers and firefighters, are fighting to repeal the cap.
They fear that the 2017 tax changes will ultimately lead to less taxpayer dollars to provide local services.
If families spend more money on federal taxes, it is believed that they will support less local taxes that support services provided by local governments.
“Ultimately, removing the $ 10,000 cap on SALT deductions would improve the ability of counties to provide essential public services such as emergency response services, public health services and community development. infrastructure, ”said Eryn Hurley, associate legislative director of the National Association of Counties.
“Local authority over our own tax systems is really vital for counties, given the wide variety of services we provide to our constituents,” she said.
Gottheimer, the SALT Caucus co-chair, said he told fellow Democrats in Congress that keeping the cap could also encourage tax-adverse residents and businesses to move from areas that provide strong government services to places that offer fewer advantages.
“There is a direct impact on the tax base,” says Gotthheimer. “A lot of the things we are proud of in New Jersey – good schools, programs for struggling families – go with them, because taxpayer dollars are going. It is a huge problem from a progressive point of view. it puts [those programs] in danger.”
Gottheimer and other opponents of the cap also dispute the claim that the SALT deduction primarily helps wealthy taxpayers. In New Jersey, he said, a police officer married to a teacher could qualify for the tax break.
“In New Jersey,” he says, “it’s a middle class problem.
He said 30% of all New Jersey residents would benefit from the repeal of the cap, citing data from the Institute on Taxation and Economic Policy. New Jersey’s share of people benefiting from the change is the highest of any state.
Hurley of the Counties Association says middle-class families across the country benefited from the deduction before it was capped.
In Franklin County, Ohio, where Columbus is located, for example, 88% of people who claimed SALT deductions in 2016 were making less than $ 200,000 a year.
But Brandon McKoy, president of New Jersey Policy Perspective, a Trenton-based think tank, said lawmakers should focus on alternatives that won’t cost as much as a simple repeal.
“This continues to be an unnecessary conversation either / or: to repeal or not to repeal,” he said in a statement. But tax practitioners have suggested other options such as increasing – but not eliminating – the cap or limiting the amount high earners could deduct.
He warned, however, that the alternatives should address the unbalanced benefits of repealing the SALT cap for wealthy taxpayers.
“As for the subject of SALT,” McKoy wrote, “the facts are really simple. Lawmakers can ask for repeal, but don’t say it’s progressive policy or promotion. equity. ”