State, local relief not in cards for residents of high-tax states as House assesses Inflation Reduction Act

Rep. Tom Suozzi, D.N.Y. speaks at a news conference announcing a Caucus on State and Local Taxes (SALT), which will be held outside the U.S Capitol on April 15, 2021.

Sarah Silbiger | Bloomberg | Getty Images

A group of House Democrats have vowed to vote for the party’s spending package, even though they have fought to repeal the $10,000 federal deduction for state taxes and local taxes, also known as SALT.

Reps. Josh Gottheimer (D-N.J.); Mikie Sherrill (D-N.J.); and Tom Suozzi (D-N.Y.) are members of the SALT CaucusAfter the Senate passed the Inflation Reduction Act, those who had pledged to oppose any bill that did not provide SALT relief expressed support for it.

The SALT limit was enacted as part of the Republican’s 2017 tax overhaul. This means that residents can’t deduct more $10,000 in state and local taxes from their federal returns.

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SALT reform was a sticking issue during Build Back Better negotiations. The House passed an $80,000 SALT increase through 2030 in its spending package. After opposition from Senator Joe Manchin (D-W.Va), the Senate stopped the plan.

‘No SALT, no deal’ does not apply, Suozzi says

However, SALT supporters have changed since Senate Majority leader Chuck Schumer, D.N.Y. and Manchin announced in late July a deal on a reconciliation measure covering climate, taxation, and health care.

“This legislation doesn’t raise taxes on families in my District — it reduces the financial burden on them,” Gottheimer said in a statement. “For that reason and because it strongly supports climate, lower prescription drug costs, and job growth, I’ll vote for it.”

He said that if anyone tries to change the tax rates for families in my district, he would insist that we restore both the state and local tax deduction.

Sherrill, Suozzi and others shared similar views, including plans to vote in favor of the bill.

Suozzi: “Regarding salt, the Inflation Reduction Act is not designed to increase personal income taxes. ‘No SALT’ does not apply.” said in a tweet.

Other attempts have been made to fight for SALT relief. Together with Reps. Tom Malinowski (D-N.J.) and Katie Porter (D-Calif.), the three lawmakers sent a May letter to the House Appropriations Subcommittee leaders, asking them to deny the IRS funds to stop state-level SALT cap workarounds.

And the push for SALT reform faced a setback in April when the Supreme Court rejected a challenge to overturn the legislation.

Some argue that SALT relief is mostly for the wealthy

Advocates say that the SALT deduction limit is unfair to middle-class families. However, opponents argue that removing it may be beneficial for wealthy homeowners.   

According to a Tax Policy Center, if the relief is completely repealed, the top 20% of taxpayers could receive more than 96%. reportOnly 9% of American households are affected by the disease. 

Without a Congress extension the $10,000 SALT limit and all other provisions of the Tax Cuts and Jobs Act will expire by 2026. 

Source: CNBC

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