By A deduction for state and local taxes may soon receive a significant increase for certain taxpayers. The SALT Marriage Penalty Elimination Act, introduced by New York Rep. Mike Lawler and six other GOP House members, aims to raise the cap on state and local tax deductions from $10,000 to $20,000 for married couples.
This proposed change is particularly beneficial for higher-income taxpayers and has been a priority for members from states like New York and California. The bill is now heading to the full House of Representatives after being left out of a larger tax-cut package that passed on Wednesday.
The larger tax-cut package, which amounts to approximately $79 billion, focuses on enhancing the child tax credit for lower-income families and boosting three tax breaks for businesses. However, it did not address the SALT deduction issue.
House Speaker Mike Johnson, a Louisiana Republican, met with members who expressed dissatisfaction over the exclusion of any provisions to address the existing $10,000 cap on property taxes or state and local taxes that can be deducted on federal returns. As a response to these concerns, the House Rules Committee has advanced Lawler’s bill, setting up a potential vote on the House floor as early as next week.
This new legislation has the potential to make a significant impact on state and local tax deductions, providing relief and increased benefits to married couples who have been limited by the current cap.
SALT Relief Faces Uncertain Future in the House
According to Brian Gardner, Chief Washington Policy Strategist at Stifel, the prospects for state and local tax (SALT) relief could be challenging in the House. Gardner believes that while the chances of SALT relief have increased, the likelihood of the bill passing is slightly below 50/50.
The issue lies in a divide between the New York delegation and most Republicans. While New York lawmakers are in favor of SALT relief, Republicans largely support the current cap on SALT deductibility. They argue that this deduction benefits high-spending blue states excessively. On the other hand, some Democrats who represent these blue states are hesitant to vote for a tax bill that could be portrayed as a tax cut for the wealthy.
The Impact of the Tax Cuts and Jobs Act
Under the Tax Cuts and Jobs Act, SALT deductions were capped at $10,000 per year. This total includes property taxes as well as either state income or sales taxes, but not both. The Tax Foundation provides this information.
Prior to the enactment of the Tax Cuts and Jobs Act in December 2017 by then-President Donald Trump, 91% of the deduction’s benefits went to taxpayers with incomes exceeding $100,000. These benefits were primarily concentrated in six states.
It remains uncertain whether SALT relief will be achieved in the House, but the discussions surrounding the issue continue to evolve.
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