Lifting SALT Deduction Restrictions Gains Support in Congress
When Congress enacted the Trump Administration’s Tax Cuts and Jobs Act in 2017, the $10,000 limit on the state and local tax (SALT) deduction was perceived to negatively affect “blue” states, where state taxes are higher. In early 2022, New York, Connecticut, Maryland and New Jersey petitioned for Supreme Court review of the cap but the Court declined to hear their appeal. Other legislative and legal efforts to reverse the $10,000 limit also failed, so the cap remains until 2026 when it will expire along with many provisions of the 2017 tax law.
The 2022 midterm elections, however, have changed the balance, with Republicans picking up seats in a few traditional Democratic strongholds. For example, New York Democrats lost four House seats to Republicans. California was another state where Republicans won seats in districts that went for Biden in 2020. These shifts have spurred renewed bipartisan interest in adjusting the SALT deduction limit in Congress.
Proposed Legislation
The latest legislation introduced to remove the SALT deduction cap, H.R. 2555, has 50 cosponsors, seven of which are Republicans, including bill sponsor Andrew Garbarino (R-NY). The bill would repeal the $10,000 cap and allow an unlimited SALT deduction, effective December 31, 2022. An earlier effort at repeal in January, H.R. 160, went nowhere and had only 2 cosponsors, though one of them was Republican Rep. Thomas H. Kean of New Jersey.
In the Senate, Republican Susan M. Collins (R-ME) introduced S. 830 in March. It would not repeal the limit but instead would double the allowed deduction to $20,000 per year. As of press time, her bill has no cosponsors. Still, it is notable that the two main SALT bills in each House of Congress, H.R. 2555 and S. 830, have Republican sponsors.
The SALT Caucus
The House of Representatives even has a SALT caucus, a bipartisan group of 33 members who are committed to restoring the full SALT deduction well before the remaining three-year expiration period. The caucus members’ statements show rare cooperation between the two parties. “For too long, New York families have suffered serious financial hardship as a result of the current cap on SALT deductions instituted in 2017,” said Rep. Anthony D’Esposito (R-NY). “I am pleased to join the bipartisan SALT Caucus, and work collaboratively with colleagues from both major parties as we set out to restore the full SALT deduction for those filing their federal income returns.” As a member of the SALT Caucus, I’m proud to join my fellow members in fighting to restore fairness in future tax legislation,” said Rep. Jerrold Nadler (NY-12).
Besides the cost to taxpayers, the deduction has been seen as a way to stop federal interference with state revenues and to prevent double taxation. Caucus members also argue that the cap affects not only the wealthy but also middle class taxpayers. As Rep. Andrew Garbarino (R-NY) points out, “In my community there are teachers, firefighters and police officers whose property taxes alone far exceed the $10,000 cap.”
Outlook
The House has passed SALT deduction relief four times since 2019 but the Senate has not acted on those bills; the earlier efforts did not have such broad bipartisan support. It is rare that individual tax bills are passed to address one issue; however, the SALT limit repeal could be included in a larger spending bill that has other revenue provisions. If you have questions or concerns, please reach out to your Frazier & Deeter tax advisor for more information.
Brian Strahle, Partner & National Practice Leader, State & Local Tax | brian.strahle@frazierdeeter.com
About the Author
Lucia Nasuti Smeal is a guest writer on tax topics for Frazier & Deeter. Smeal is an attorney, an adjunct tax professor with Georgia State University’s J. Mack Robinson College of Business and with Franklin University and former editor of Tax Notes Today, published by Tax Analysts. Smeal also worked as a legislative analyst for the Congressional Research Service and is a former member of the U.S. House Periodical Press Corps. She is a frequent speaker and writer on current tax developments.
Contributors
Brain Strahle, National Practice Leader, State & Local Tax
Lucia Nasuti Smeal, Adjunct Tax Professor Georgia State University
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