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Blue-State Republicans Demand Higher SALT Deduction Cap

S.J. Steinhardt
Published Date:
Jul 24, 2023

Some Republican House members from states such as New York, New Jersey and California are threatening to vote against a tax package approved in June by the House Ways and Means Committee unless a provision is added to raise the $10,000 cap on state and local tax (SALT) deductions instituted by the 2017 Tax Cuts and Jobs Act (TCJA), The Washington Post reported.

Some of these Republican moderates have teamed up with Democrats to form the SALT Caucus, whose sole purpose is to undo that provision of the TCJA. The tax package passed by Ways and Means would restore expired tax cuts for businesses passed under the Trump Administration and repeal climate-oriented tax credits passed under President Joe Biden.

“If they [the slim House Republican majority] want to move a tax bill forward, they’re going to need the votes of those from New York,” Rep. Anthony D’Esposito (R-N.Y.), who represents a Long Island district with some of the highest local property taxes in the country, told the Post. “If they need our vote, if they want our vote, we should really be having sincere and legitimate conversations about how we include SALT.”

“I have too many constituents leaving Long Island for places like Florida and the Carolinas,” said Rep. Nick LaLota (D-N.Y.), who represents the eastern end of Long Island. “One of the ways we can blunt that is having a higher SALT deduction.”

Rep. Kevin Hern (R-Okla.), who chairs the conservative Republican Study Committee, said the “vast majority” of his 176-member caucus would oppose eliminating the SALT cap. Right-wing proponents of the SALT deduction cap argue that it gives blue states and cities an incentive to cut taxes.

Yet Richard Auxier, an analyst at the nonpartisan Tax Policy Center, doubted whether the SALT deduction influences local policy. “The states affected by [the SALT cap] have Democratic control,” he told the Post. “They’re not going to run out and cut taxes on their highest income earners.”

In a 2018 analysis, Auxier’s organization forecast that removing the cap would save taxpayers in the top quintile an extra $2,500 a year on average, and those in the top 1 percent about $30,000 a year, according to the Post

In addition, all but three states with an income tax changed their state laws to provide for SALT deduction cap workarounds, so that the taxes that partners or shareholders of certain entities pay on their business income effectively do not count toward the federal SALT cap, the AICPA found. New York state has a pass-through entity tax (PTET) that eligible partnerships or New York S corporations can elect to pay, enabling their eligible partners, members, or shareholders to receive a credit on their New York state income tax returns.

As the current tax bill stands little chance of passage with or without SALT changes, there could be a compromise between the Republican-led House and Democrat-led Senate, the Post reported. One scenario could be extending business tax cuts in exchange for increasing the size of the child tax credit, which has some bipartisan support.

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