Lawmakers continue to debate the benefits to middle-class taxpayers of repealing the $10,000 cap on the state and local tax, or SALT, deduction.
Reps. Nita Lowey, D-N.Y., and Peter King, R-N.Y., floated legislation last January, The Securing Access to Lower Taxes by Ensuring Deductibility Act, or SALT Deductibility Act, to repeal the limit on the SALT deduction, thereby “providing tax relief for the millions of families who rely on the deduction.”
Lowey and King argued at the time that their bill restores the SALT deduction, which was “significantly curtailed” by the sweeping tax overhaul passed in 2017.
“Millions of taxpayers in high-taxed states like New York depend on the state and local tax deduction to help pay their expenses and care for their families,” Lowey said in introducing the bill. “By effectively eliminating this deduction, the new federal tax law unfairly punishes families living in states that send more money to the federal government than we get back in federal investments.”
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The SALT deduction was “a major source of tax fairness for high-taxed states like New York, where 35% of taxpayers deduct an average of more than $22,000 every year,” Lowey said.
The 2017 tax law caps the SALT deduction at $10,000, “effectively raising taxes on millions of middle-class Americans who depend on the deduction,” Lowey argued.
Newly released analysis by the Tax Foundation in Washington, a conservative-leaning research group, finds that removing the SALT deduction cap would cost $673 billion during the 2019-’28 budget window and that most of the benefits would go to the top 5% of households.
“We estimate that eliminating the SALT deduction cap would have no impact on taxpayers in the bottom two income quintiles and a negligible impact on taxpayers in the third and fourth quintiles,” writes Kyle Pomerleau, the Tax Foundation’s director of quantitative analysis.
“These taxpayers currently benefit from the new large standard deduction. However, taxpayers in the top 5 and 1% of income earners would see an increase in after-tax income of 1.25% and 2.79% respectively.”
John Buhl, spokesman for the Tax Foundation, told ThinkAdvisor on Tuesday that there is “no ‘pay for’ attached” to the Lowey-King bill. “By contrast, near the end of the last Congress, there had been a call to increase the corporate tax rate from 21% to 25% to fully restore the SALT deduction.”