Democrats take final swipe at SALT cap before year’s end

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House Democrats are making a last-ditch bid to reverse the $10,000 cap on state and local tax deductions before year’s end. But they’ll likely need to renew their efforts in 2020 — or beyond — because the legislation has no chance of becoming law this year.

Democrats in Congress, governor’s mansions and state legislatures have tried a slew of tactics to repeal the $10,000 SALT cap or find ways around it. Their attempts been stymied by courts, the Treasury Department and Republicans on Capitol Hill.

This time, Democrats are pursuing legislation, released late Monday, that would temporarily raise the SALT cap to $20,000 for married couples in 2019, before repealing it fully in 2020 and 2021.

The cap would revert back to $10,000 in 2022 and would be paid for by raising the top individual tax rate to 39.6 percent from 37 percent. The bill also would decrease the income threshold for the highest tax bracket.

The higher rates and new brackets would stay in effect through 2025 when the Republican tax law is scheduled to expire. The SALT deduction and rate changes would raise a net $6.2 billion over a decade, the congressional scorekeeeper, the Joint Committee on Taxation, estimated Tuesday.

“We’re going to do it,” said Representative Bill Pascrell, a New Jersey Democrat who is sponsoring the bill. “You just keep on moving. You don’t back off and surrender and pout.”

The House Ways and Means Committee is scheduled to vote Wednesday on the bill. With the House eyeing a Dec. 20 departure for the year, Democrats leading the effort say they’re seeking a floor vote by the end of 2019.

But the measure will be competing for floor time against several other pressing issues. Lawmakers are finalizing articles of impeachment against President Donald Trump, working to pass spending legislation to avert a government shutdown before the Christmas holiday and potentially considering a revised trade deal between the U.S., Mexico and Canada.

Still, SALT remains a priority for many Democrats who view it as a way to fix one of the most politically contentious portions of the 2017 Republican tax law. Democrats say Republicans targeted residents of high-tax states like New York, New Jersey and California, which are largely represented by Democrats, to pay for their $1.5 trillion corporate and individual tax cut.

The tax break was previously unlimited, with some restrictions if the taxpayer was subject to the alternative minimum tax. Raising the cap for married couples this year and the two-year repeal will mean more people in those high-tax states will see their liabilities decrease temporarily. Republicans have criticized the bill, saying the savings will go to high-income taxpayers who don’t need a tax subsidy.

The tax break is particularly important to moderate Democrats, who represent suburbs outside of Chicago, New York and Los Angeles. Representatives Lauren Underwood of Illinois and Mike Sherrill of New Jersey are among the Democratic freshman who ousted Republican incumbents in the 2018 midterms, partially because voters were angry to see their SALT tax break limited.

House passage would likely be the last stop for the legislation, which leaders in the Republican-controlled Senate have said they won’t consider.

That’s a familiar theme in the SALT saga. State legislatures have tried passing laws allowing residents to bypass the $10,000 limit, only to be blocked by the Treasury Department. New York, New Jersey, Connecticut and Maryland sued the Trump administration over the cap, but a judge tossed out the case. The decision is being appealed.

Even lawmakers who want to see the cap raised are pessimistic that the efforts are worth it.

“I don’t see any movement before the end of the year,” said Representative Peter King, a New York Republican who supports raising the cap. “I can’t see Senate Republicans accepting that.“

Laura Davison
Bloomberg News
SALT deduction Finance, investment and tax-related legislation Tax reform Tax deductions State taxes