Senate rejects Democrats’ effort to repeal SALT deduction rules

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The Senate rejected a Democratic proposal that sought to give states leeway to help residents avoid the $10,000 limit on deductions for state and local tax payments.

The 43-52 vote Wednesday is a loss for Democrats who have been trying to chip away at the 2017 Republican tax-cut law that limited the federal deduction for state and local taxes, or SALT, to $10,000. The deduction has been especially valuable to people in high-tax states, including New York, New Jersey and California.

The resolution, S.J.Res. 50, aimed to repeal Treasury Department regulations that prohibited high-tax states from creating charitable funds where residents could contribute their state tax payments, effectively bypassing the SALT limit.

The regulations also limit tax breaks available to donors for private school tuition funds popular in many Republican-led states. Democrats had hoped that would persuade some members of the GOP to back their bill.

Democrats have been attempting to repeal the deduction limit since it became law in 2017. The SALT write-off was previously unlimited.

Republicans have criticized Democrats’ desire to unwind part of the tax law in a way that would primarily benefit top earners. The Joint Committee on Taxation estimated that more than half of the benefit from a complete repeal of the cap would go to those earning at least $1 million a year.

At least one Senate Democrat said he agreed with the Republican opponents.

“The vast majority of the benefits of repealing the SALT cap would go to high-income Americans,” Michael Bennet, a Colorado Democrat, said in a speech on the Senate floor. “Repeal would be extremely costly, and for that same cost, we could advance much more worthy efforts to help working and middle-class families all over the country.”

The Democratic-led House is working on legislation to raise the $10,000 cap or repeal it entirely, but members have yet to agree on how much more generous to make the tax break. The House Ways and Means Committee plans to consider legislation this year, but any bill would almost certainly be blocked in the Senate.

Laura Davison
Bloomberg News
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