State and local income tax - notebook (Photo: Shutterstock)

After more than two hours of debate on Thursday, the House of Representatives passed a bill to temporarily repeal the $10,000 annual limit on state and local tax deductions.

The bill, the Restoring Tax Fairness for States and Localities Act, increases the tax deduction for state and local taxes in 2019 to $20,000 for married couples filing joint tax returns and eliminates the current $10,000 cap on the deduction in 2020 and 2021.

The bill also raises the above-line-deduction for teachers buying classroom supplies from $250 to $1,000 and provides a $1,000 deduction for first responders’ expenses.

Taxpayers earning over $100 million would not benefit from the higher SALT deduction cap. They would still be subject to the $10,000 cap, courtesy of a Republican-sponsored amendment.

The higher SALT deduction limit would be financed by an increase in the top marginal income tax rate from 37% to 39.6%, the rate that existed before passage of the 2017 tax cut legislation, but that change would be permanent.

Now the bill moves to the Senate, where it’s not likely to pass. In the unlikely event that it does,  President Trump has already promised to veto the legislation. His Office of Management and Budget (OMB) said in a statement that “this legislation would unfairly force all Federal taxpayers to subsidize a tax break for the wealthy, as well as excessive government spending by fiscally irresponsible States.”

Supporters of the bill from high-tax states like New Jersey, New York, Illinois and California, noted during Thursday’s debate on the House floor that the SALT deduction limit enacted by the 2017 tax cut bill was unfair because it meant that taxpayers whose state and local taxes exceeded the $10,000 cap were taxed twice: first by those jurisdictions and then by the federal government.

“We need to be intellectually honest,” said Rep. Tom Suozzi, D-N.Y., sponsor of the bill, known as HR 5377.  “Number one, 100% of this bill is paid for by the wealthiest Americans … who make over $440,000 a year… It’s about restoring fairness. It’s not far that that state and local municipalities who relied on this since the beginning of the tax code in 1913 are now getting a punch in the gut…”

Referring to New York State taxpayers’ federal income tax payments, Suozzi said, “We send $48 billion a year more to the federal government than we get back.” He dismissed criticism that repealing the SALT limit benefits “irresponsible states” because states like New York actually subsidize other states.

According to a 2019 report from the Rockefeller Institute of Government, New York, New Jersey and Massachusetts get back 86 cents or less from every dollar they send to the federal government in taxes, based on 2017 tax year data. Connecticut collects even less, 74 cents.