House to deliberate on raising limit for state, local tax deductions

The United States House of Representatives is poised to cast its votes this week on a legislative rule that seeks to elevate the ceiling for state and local tax deductions (SALT) for numerous married couples.

Originating from the 2017 tax cut bill enacted by Republicans and endorsed by then-President Donald Trump, the current cap of $10,000 has triggered increased taxes for residents in states such as New York, New Jersey, and California.

Congressional Democrats, along with Republicans representing swing districts in these states, have persistently advocated for the repeal of this cap. The recent escalation in the debate occurred when four House Republicans from New York employed a procedural tactic to stall a tax bill, prompting negotiations on SALT relief. A proposed rule for floor debate advanced through the Rules Committee on Thursday.

Representative Mike Lawler, R-N.Y., introduced the bill that proposes elevating the deduction limit from $10,000 to $20,000 for married couples earning up to $500,000 annually. The adjustment would only apply to the current tax year, returning to $10,000 thereafter until its scheduled expiration in 2026. Republicans argue that SALT deductions were targeted to help offset the costs of the Trump tax cuts, asserting an unfair advantage for residents in high-tax states, primarily blue states.

In 2017, before the Trump tax cuts took effect, SALT deductions amounted to $69 billion in federal tax revenue, according to the Peter G. Peterson Foundation. A nonpartisan estimate from Penn Wharton indicated that the proposed $20,000 cap could reduce federal revenue by $12 billion. Representative Matt Gaetz, R-Fla., defended the position, emphasizing that low-tax states should not subsidize high-tax states.

Critics argue that the deductions are a “handout to the rich,” while proponents of the cap reduction contend it adversely affects the middle class in high-tax states. Legislators in favor of lifting the SALT cap highlight the support from essential workers, such as firefighters, police officers, and teachers, emphasizing the burden faced by working and middle-class families in high-tax regions.

The debate over SALT has become a pivotal issue in congressional races, notably in the special election to replace ousted Representative George Santos in New York’s 3rd District. Democratic candidate Tom Suozzi has vowed to defeat the SALT cap, contrasting with GOP candidate Mazi Pilip, who aims to restore full deductions and criticizes Suozzi for perceived inaction during his previous term. The upcoming House vote is anticipated to address the complex and contentious SALT issue, with potential implications for taxpayers across the nation.