House Lawmakers Launch Group to Fight for 'SALT' Cap Repeal

Rep. Josh Gottheimer, D-N.J., seen here in December 2020, is one of the lead proponents of repealing a cap on the federal deduction for state and local tax payments.

Rep. Josh Gottheimer, D-N.J., seen here in December 2020, is one of the lead proponents of repealing a cap on the federal deduction for state and local tax payments. AP Photo/Jacquelyn Martin

 

Connecting state and local government leaders

But they face firm Republican opposition and there are no clear signs of support coming from the White House.

Over two-dozen lawmakers in the U.S. House have joined a new group to fight for the repeal of a $10,000 cap on the federal tax deduction that people can claim on the state and local taxes they pay.

The formation of the so-called "SALT Caucus"—a reference to the common shorthand for the state and local tax deduction—is one of the latest developments in a campaign, spearheaded mainly by Democrats, to remove the cap, which was imposed under Republicans' 2017 rewrite of the federal tax code.

"We're all banding together to help find a way to get this done this Congress," said Rep. Josh Gottheimer, a New Jersey Democrat who has been one of the most outspoken House lawmakers on the issue of restoring the full deduction. He said the median property tax bill in his district is $15,000 and that the average SALT deduction there was around $24,000 before the cap.

"It's had a major impact on the cost of living in northern New Jersey," he added.

Gottheimer's office sent out a list of 32 members who signed on to the caucus. Twenty six are from three states: California (12), New Jersey (7) and New York (7). Eight are Republicans.

Debate over the tax break has merged with discussions about President Biden's roughly $2 trillion infrastructure and jobs proposal, which calls for changes to tax law to raise revenues. Biden's tax proposals center largely on raising the corporate tax rate and capturing more taxes from companies with overseas earnings.

Seventeen Democratic members of New York's House delegation, including Rep. Tom Suozzi, one of the co-chairs of the SALT Caucus, in a letter this week to House Speaker Nancy Pelosi and Majority Leader Steny Hoyer, said they would "reserve the right" to oppose any tax legislation that does not include a "full repeal" of the cap.

Gottheimer and Suozzi, along with Rep. Bill Pascrell, of New Jersey, took a similar position late last month.

"We're all saying that this has to be part of the conversation," Suozzi said Thursday.

State leaders are focused on the issue as well. Earlier this month, a group of seven Democratic governors called on Biden  to support repealing the limit on the tax break.

So far, the White House has not shown clear enthusiasm for the repeal.

"We welcome proposals from a range of members. And many of them have been quite vocal about their views on the SALT deduction," White House spokeswoman Jen Psaki said Wednesday when asked about lawmakers backing the restoration of the full deduction.

"We're also interested in proposals on how to pay for a package," she added. "The SALT deduction would not be a revenue raiser, so they may come with proposals and ideas on that as well."

Repealing the cap would put a dent in federal revenues because it would enable people to claim bigger tax deductions and pay less in income taxes. People can claim the SALT deduction against certain combinations of state and local property, income or sales taxes.

The nation's unbalanced budget is getting attention in Washington these days. Some of this is due to partisan politics, and Republicans seizing on spending concerns as they oppose Democratic policies—even though the GOP's signature tax law was approved with some estimates showing that its tax cuts for corporations and other provisions would result in $1 trillion to $2 trillion in lost revenue.

But the federal government is also spending huge sums responding to the Covid-19 pandemic. Lawmakers approved multiple rounds of coronavirus relief legislation over the past year that will allow for up to around $6 trillion of spending. The federal government ran a roughly $660 billion deficit in March alone, the third largest on record.

Republicans continue to pledge they will do their best to block the SALT deduction cap repeal effort, while also taking shots at Democrats for supporting a policy that favors higher earners.

Rep. Kevin Brady, a lead author of the 2017 tax bill, told Fox Business on Thursday that he thought the effort to repeal the cap would fail. "I think Democrats are tone deaf," he said. "They're insisting on a huge tax windfall to mainly millionaire households in just a few states."

"It will also give a green light to your governors and your mayors to raise your taxes even more," added Brady. The Texas Republican, who announced this week that he would not seek reelection, said he would put his "heart and soul" into opposing tax increases like the Biden administration is pushing for and the drive to roll back the SALT cap.

Supporters of repealing the $10,000 ceiling on the tax break tend to argue that it punishes Democratic-leaning "blue" states with higher taxes, higher living costs and more higher earners than their peers.

They also make a case that if taxpayers can’t deduct state and local taxes, they feel the pinch more from higher state and local tax rates and rate increases, limiting the ability state and local officials have to raise taxes and pay for services.

And critics say that imposing federal taxes on income that people use to pay state and local taxes is a form of double taxation and point out that the SALT deduction's origins and policies to prevent taxing people federally on earnings they've paid to other levels of government, can be traced back to Civil War era tax law.

But Democrats advocating for restoring the full deduction are walking a tightrope.

In 2017, an estimated 71% of the tax benefits from the SALT deduction went to taxpayers with incomes over $200,000, according to estimates from Congress' nonpartisan Joint Committee on Taxation. Those earning under $75,000 a year enjoyed just 2% of the tax savings.

Figures like that make for difficult messaging at a time when Biden and other leading Democrats are framing their policies as ways to help the poor and to address longstanding problems with racial inequities.

Members of the SALT caucus who spoke Thursday pushed back on criticism that the deduction is mainly a perk for the rich. Suozzi, similar to others in the group, said that in his district—located east of New York City on the north side of Long Island—families earning $100,000 or $150,000 are firmly middle class.

"The SALT cap is placing so much pressure on people," he said. "We want to relieve that."

But Republicans like Brady are more inclined to highlight tax rates in states like New York, not the SALT cap, as the source of the pressure Suozzi is describing. "These are great states," Brady told Fox Business. "But they brutally tax families and businesses."

Bill Lucia is a senior reporter for Route Fifty and is based in Olympia, Washington.

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