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Senate Considers Repeal of the SALT Deduction Cap

by
Bob Mason
on
8/23/2021
Senate Considers Repeal of the SALT Deduction Cap

After hours of debate in mid-August, the U.S. Senate approved a $3.5 trillion budget resolution that represents a significant goal for the Biden administration. The law now goes back to the House for consideration, and one critical piece that may or may not survive that process is a revision to the $10,000 limit on state and local taxes that was a key part of the 2017 tax overhaul. Though Senator Chuck Grassley, R-Iowa, submitted an amendment that would have blocked the revision, the Democrats voted along party lines to defeat his amendment.

The cap on deductions for state and local taxes (SALT) has been an issue for those living in high-tax states ever since it passed. It effectively prevented anybody who itemized from writing off more than $10,000 for state income taxes and property taxes. In states like New Jersey, annual property taxes on even modest homes can far exceed that number. But opponents say repealing the cap is aimed at wealthy taxpayers. While defending his amendment from the Senate floor, Grassley made that point clear when he said, “Democrats, on one hand, claim the wealthy are not paying their fair share, while at the same time proposing to give millionaires six-figure tax cuts.”

It is true that more than 96% of the benefit of repealing the cap would be realized by the top 20% of earners, with more than half of the benefits going to the 1% of taxpayers in the highest income bracket. An analysis by the Tax Policy Center revealed those statistics, as well as noting that if passed, the change would only impact 9% of tax filers.

Despite the narrow reach of the revision and the fact that it is not fully fleshed out within the budget resolution framework, getting rid of the SALT cap is important enough to lawmakers that it could potentially halt President Biden’s progress towards getting the bill passed. According to the Tax Foundation there are a few possible ways that lifting the cap could be done, including lifting the amount of the cap, tying the ability to write the taxes off as a deduction to the taxpayer’s income level, and repealing the SALT deduction limit entirely – an option that would cut federal revenue by $380 billion through the time that it is scheduled to sunset in 2025. Garrett Watson is the organization’s senior policy analyst and he said, “It’s something we’ve been following pretty closely over the past few months.”

While the Senate and House continue their wrangling, the states whose residents have been most affected have come up with their own workarounds, most of which involve allowing pass-through business owners to use a state levy to cover part of the owner’s state income taxes to bypass the limit.

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Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

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