Reversing SALT Cap Workaround

Senate Democrats have announced a plan to use their authority under the Congressional Review Act to force a vote in order to reverse the IRS rule that prevents taxpayers from relying upon state-level rules to work around the $10,000 cap on the deduction for state and local taxes. Essentially, the IRS rule prohibits taxpayers from taking state-level tax credits for donations made to state-established charities in order to reduce the impact of the federal cap. Under the Congressional Review Act, Congress is permitted to review and nullify agency guidance, including IRS guidance, if the review is undertaken in a timely manner.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the advisability of using the CRA to challenge this IRS rule.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: While the Senate plan may seem extreme, the SALT cap in itself is extreme—meaning that extreme measures are appropriate in order to protect taxpayers from this arbitrary and inequitable tax penalty. The arduous SALT cap places a huge burden on much of middle class America based solely upon the tax structure in a taxpayer’s state of residence. The IRS has prevented states from taking action to reverse the inequitable treatment created by the SALT cap, so if the Senate Democrats have to resort to using the Congressional Review Act to nullify this rule, it’s because they’ve been left with no other option.

Byrnes: Using the Congressional Review Act as a weapon to nullify the IRS’ valid enforcement of a law that was approved by Congress and signed into law by the President is a ridiculous political ploy on the part of Senate Democrats. While the check that’s permitted under the CRA provides a valuable took to ensure that agencies don’t overstep their mandate in enforcing the law, using the CRA in this case is uncalled for because the IRS rule simply enforces the federal law.

____

Bloink: The problem with the SALT cap is that it’s a highly inequitable provision that results in Americans paying taxes on the same income twice—both at the state and local level, and then again by paying federal taxes on amounts that have already been expended for lower-tier taxes in the taxpayer’s home state. We’ve tried to work toward raising the cap or simply eliminating the cap, but Republicans in Congress have blindly refused to cooperate in a compromise agreement.

Byrnes: Resorting to the CRA is extreme and uncalled for—it’s only a ploy being used by Democrats to gain votes in 2020. Importantly, even if the IRS rule was invalidated, the SALT cap will continue to stand as an important revenue check on the substantial tax cuts that everyone has benefitted from under the TCJA.

____

Bloink: The SALT cap is an experiment that’s failed. It’s time for Republicans to take notice of the fact that this is one provision in the tax reform bill that can’t be allowed to stand. If we can’t garner the support to invalidate the rule altogether, we can at least allow states to step in to mitigate its impact on hardworking Americans.

Byrnes: These hardworking Americans that Professor Bloink speaks of have reaped the benefits of substantial tax breaks under the TCJA. They’re paying less in taxes and if the SALT cap reduces the value of one substantial tax benefit it’s only in an effort to tax everyone more equitably at the federal level. We needed the SALT cap to offset the revenue lost to a much greater good—reducing the tax burden for everyone. States shouldn’t be permitted to enact legislation designed to reduce the value of a law that was properly voted on and implemented, and the IRS rule recognizes this fact. Using the CRA at this point is a last-ditch desperate attempt by the Democrats to gain votes.