WASHINGTON – When President Joe Biden came into office last year proposing bold spending plans, lawmakers from high-income states saw a chance to erase a cap limiting state and local tax (SALT) deductions hurting many of their constituents.
They demanded any wide-ranging spending bill Congress passes must lift the cap. “No SALT. No deal,” they vowed.
Now some of those same House Democrats are saying they will support the sweeping climate and health care legislation known as the Inflation Reduction Act the Senate passed Sunday afternoon even though it keeps the cap on those deductions.
So what are SALT taxes and how do they factor in the future of the ambitious spending bill the House will consider as early as Friday?
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What are SALT deductions?
Current law allows taxpayers to deduct any state and local taxes (SALT) paid from their gross income when they file for federal returns.
In 2017, Trump’s wide-ranging tax overhaul capped how much filers can deduct in SALT taxes – up to $10,000 – that would last until 2025.
House representatives from high-tax states, such as New Jersey, New York and California have made the issue a sticking point for any budget bill that comes to the table, arguing the cap harms their higher-earning constituents.
“SALT remains a top priority. We support the President’s agenda, and if there are any efforts that include a change in the tax code, then a SALT fix must be part of it. No SALT, no deal,” said Reps. Josh Gottheimer, DN.J., Tom Suozzi, DN.Y. and Mikie Sherrill, DNJ., in a joint statement in January.
At the time, they were weighing in on Biden’s $1.75 trillion Build Back Better bill which never passed. On Friday, the House is expected to take up the scaled-down Inflation Reduction Act.
Is SALT in the Inflation Reduction Act?
The Inflation Reduction Act heads to the House with no provisions that either raises the cap on SALT deductions or eliminates it.
Sen. Joe Manchin, W-Va., has been averse to changing any cap on SALT deductions, calling them a tax “loophole,” in a statement following the announcement of the IRA in late July.
During the Senate’s “vote-a-rama,” on the legislation – a period where Senators can offer unlimited amendments to budgetary and reconciliation bills – Sen. John Thune, RS.D., offered an amendment that passed to extend the cap on SALT deductions by another year.
The amendment endangered the bill’s passage in the House since the cap not only remained in place but would have extended through 2026 under Thune’s amendment. As Democrats wield a thin 220-210 majority – only a handful of pro-SALT deduction Democrats needed to defect for the bill to fail. As with the Senate vote, no House Republicans are expected to support the bill.
In response, Senate Democrats passed a substitute amendment offered by Sen. Mark Warner, D-Va., that replaced Thune’s amendment with a different tax provision to avoid angering pro-SALT deduction Democrats and ensure passage. The cap will remain in place until 2025, not 2026 as Thune proposed.
What are people saying?
- In a statement following the bill’s passage, Gottheimer announced his support of the bill even without the SALT provisions, saying his “line in the sand remains the same.”
- Sherill also said in a statement she will continue to advocate for raising the SALT cap, but “because this legislation does not raise taxes on families in my district, but in fact significantly lowers their costs, I will be voting for it.”
George is Digismak’s reported cum editor with 13 years of experience in Journalism