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SALT Deduction Cap Continues to Roil Congress

S.J. Steinhardt
Published Date:
Aug 3, 2023

Congressional Republicans continue to be locked in an intraparty fight over the fate of the state and local tax (SALT) deduction cap, The Wall Street Journal reported.

Republicans from high-tax states such as New York, New Jersey and California said that they will block a GOP tax bill unless the top tax writer, Rep. Jason Smith (R-Mo.), chair of the House Committee on Ways and Means agrees to raise or eliminate the $10,000 limit.

“In my district, if you own a home and you have a job, you hit the $10,000 cap,” said Rep. Mike Garcia (R-Calif.), who represents a Los Angeles-area district. “This issue and our ability to navigate the SALT is going to be what allows us to keep the majority.”

Republicans oppose raising taxes on top earners, but they see the cap as reducing what they see as a federal subsidy for residents of high-tax states. On the Democratic side, some members of Congress from high-tax states also oppose the cap, but there are also those who support the cap, seeing the uncapped deduction as benefiting high-income people.

The legislation proposed by Republicans would reverse business-tax increases that were part of the 2017 Tax Cuts and Jobs Act (TCJA) that took effect on Jan. 1, 2018. One of those provisions changed how small research-intensive companies deducted research costs.

Smith’s bill would temporarily expand the standard deduction for individuals. That would make the $10,000 limit less important for some households. He suggested that SALT cap changes could be possible in an end-of-year bipartisan bill, but not now, saying, “You don’t vote against a bill because of what’s not in it.”

I’m going to continue to stand firm,” said Rep. Nick LaLota (R-N.Y.), who represents eastern Long Island and is seeking a much higher cap, at least. “This is oxygen to many of my constituents. This is the one thing that cuts through all the partisan BS.”

Rep. Andrew Garbarino (R-N.Y.) said that lawmakers are getting cost estimates for some options to ease the cap and are looking for ways to offset its fiscal impact.

All of the 2017 tax cuts for individuals are set to expire after 2025. To extend them without enlarging budget deficits, the SALT cap could continue to raise a lot of money, and from high-income people.

“What I would hope is that policy makers grapple with trade-offs,” David Kamin, a former senior aide to President Biden, told the Journal. “If you’re not going to do the SALT limitation, then there should be reduced tax cuts.”

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