‘SALT’ Saga Flares as Governors Push to Repeal $10,000 Limit

In this Feb. 25, 2021, photo, President Joe Biden listens as Gov. Andrew Cuomo, D-N.Y., speaks during a virtual meeting of the National Governors Association, in the South Court Auditorium on the White House campus in Washington.

In this Feb. 25, 2021, photo, President Joe Biden listens as Gov. Andrew Cuomo, D-N.Y., speaks during a virtual meeting of the National Governors Association, in the South Court Auditorium on the White House campus in Washington. AP Photo/Evan Vucci

 

Connecting state and local government leaders

The latest efforts to restore a federal break for state and local tax payments come as the White House proposes tax policy changes to help fund President Biden's infrastructure package.

The battle over a $10,000 cap on the federal tax deduction that people can claim for certain state and local taxes they pay is heating up again, with seven Democratic governors calling on President Biden to support repealing the restriction.

The plea from the governors last week comes as the White House and Democrats in Congress are looking at possible changes to federal tax policy in conjunction with a roughly $2 trillion package focused on infrastructure upgrades and other domestic priorities that Biden has proposed. Three House Democrats have also come out saying they’d oppose any efforts to alter the tax code unless the so-called “SALT” deduction is fully restored.

So far, the Biden administration has not shown much eagerness for scrapping the cap, which generally benefits wealthier taxpayers, rather than those lower on the income ladder.

Congressional Republicans restricted the deduction as part of their sweeping 2017 overhaul of the federal code, which former President Donald Trump signed into law at the end of that year. Prior to 2018, there was no dollar amount limit on the federal deduction individual taxpayers could claim on certain combinations of state and local property, income or sales taxes.

Local government groups and some state officials unsuccessfully fought the cap on the deduction. They’ve generally argued it would make it harder for their jurisdictions to levy taxes used to pay for projects and services. The thinking goes that if taxpayers can’t deduct state and local taxes, they feel the financial effects of higher rates and increases more acutely.

Critics also say that imposing federal taxes on income that people use to pay state and local taxes amounts to double taxation.

In the years since the federal tax law went into effect, some states have tried to offer workarounds to the cap, several states also challenged the provision in court. Elected leaders, meanwhile, including Democratic governors and some members of Congress, have been vocal in calling for the cap to be rolled back.

“Capping SALT deductions was based on politics, not logic or good government. This assault disproportionately targeted Democratic-run states,” the seven governors wrote in a letter sent to Biden on Friday. They make clear that their preference is to “eliminate the SALT cap entirely.”

Governors signing the letter were: Andrew Cuomo, of New York; Phil Murphy, of New Jersey; Gavin Newsom, of California; Ned Lamont, of Connecticut; David Ige, of Hawaii; J.B. Pritzker, of Illinois; and Kate Brown, of Oregon.

Republicans have pounced repeatedly, criticizing Democratic efforts to repeal the SALT deduction limit. They counter that reversing the policy would mainly provide tax relief to the rich and especially to taxpayers in “blue” Democratic-leaning states with higher taxes. GOP lawmakers also say nixing the cap would make it easier for states and localities to raise taxes. 

Restricting the deduction to $10,000 was one way that Republicans boosted the amount of tax dollars the federal government was projected to collect in the years after their tax law went into effect. This helped to offset the expected losses in federal tax revenue from substantial cuts to the corporate tax rate and other changes that were included in the 2017 tax package.

If the cap on the deduction were eliminated for 2021, allowing people to claim it again in full, federal revenue would fall by about $88.7 billion for the fiscal year, according to December 2019 estimates from Congress’ nonpartisan Joint Committee on Taxation. 

Asked last week about Biden’s position on the cap, White House press secretary Jen Psaki noted that undoing the policy would carry a cost for the federal budget. “If Democrats want to propose a way to eliminate SALT,” she said, “and they want to propose a way to pay for it, and they want to put that forward, we're happy to hear their ideas.”

Axios reported that “a commonly held view at the senior level of the Biden administration” is that the SALT deduction cap is actually a good policy.

A 2018 Tax Policy Center analysis found that only about 9% of households would benefit from repealing the cap. Meanwhile, more than 96% of the tax cut would go to the highest-income 20% of households and the top 1% of households, making $755,000 and up, would see about half of the tax relief. 

One way to view the SALT deduction is as a federal subsidy for state and local government spending that is worth more in states with higher taxes. 

But Cuomo and others point to research that shows households and businesses from states where elected leaders are pushing back against the cap—like New York, Connecticut and New Jersey—send more to the federal government in tax payments than they get back in federal expenditures, and effectively provide a subsidy in that way to states with lower taxes.

The White House has proposed a number of tax policy changes related to the infrastructure package that Biden has put forward. Notably, the plan calls for raising the top corporate income tax rate to 28% from 21%—it had been 35% before it was slashed under the 2017 tax law. It also includes proposals to capture more tax revenue from companies’ overseas earnings. 

Last week, a trio of Democratic House lawmakers—Reps. Bill Pascrell and Josh Gottheimer of New Jersey and Tom Suozzi of New York—staked out their opposition to changing the tax code without restoring the full SALT deduction. “No SALT, no deal,” they said in a joint statement.

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

NEXT STORY: Grading State Budget Practices at a Turbulent Time

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.