Democrats promise ‘significant’ relief from state and local tax deductions

House Democrats have said they will seek to “significantly” change the $ 10,000 cap on the federal deduction for local and state taxes, known as SALT.

The controversial measure is part of former President Donald Trump’s 2017 tax overhaul and has been a pain point for Americans in high-tax states.

Since the Tax Cuts and Jobs Act, those who itemize deductions can no longer deduct more than $ 10,000 in property and state taxes on their federal return.

While the Ways and Means Committee did not address SALT as a whole of tax proposals, Chairman Richard Neal, D-MA, along with Reps Bill Pascrell, Jr., D-NJ, and Tom Suozzi, D- NY issued a joint statement saying they are “working daily” on reform.

“We are committed to enacting legislation that will include significant relief from SALT which is so essential to our middle class communities and we are working towards this goal daily,” they said.

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As lawmakers debate President Joe Biden’s agenda, repealing the SALT deduction cap has been a sticking point among lawmakers in high-tax states.

A group of moderate Democrats, mostly from New Jersey and New York, have said they will not support a bill unless it reinstates the tax break.

“I’ve been consistent for six months: ‘No SALT, no deal,’” Suozzi said in a separate statement.

While Democrats don’t need Republicans’ backing to pass their $ 3.5 trillion spending bill, they do need the votes of every Democratic senator and nearly every member of the House.

However, the proposed repeal has been rejected by lawmakers who argue that the tax cut can primarily benefit the wealthy.

According to a Tax Policy Center report, the richest 20% of taxpayers could reap more than 96% of the benefits of a SALT cap repeal, and only 9% of U.S. households could be affected.

In addition, the richest 1% of households can receive 54% of the benefit, with an average tax break of $ 34,000.

The SALT deduction cap brought in $ 77.4 billion in the first year of its implementation, according to the Joint Committee on Taxation. Removing the limit for 2021 could cost $ 88.7 billion, and more in the years to come.

In the meantime, a growing number of states are now offering workarounds for the SALT cap for pass-through business owners. These strategies may allow some businesses to bypass the deduction limit by using a state levy to pay a portion of the owner’s state income taxes.