Repeal of the cap on national and local tax deductions still in force

The Senate approved a $ 3.5 trillion budget resolution early Wednesday after 14 hours of debate.

Voting along party lines, Democrats blocked an amendment by Sen. Chuck Grassley, R-Iowa that would have stopped changes to the $ 10,000 limit on the local and state tax deduction, known as SALT .

The measure is part of the Republicans’ 2017 tax overhaul and was a pain point for many Americans living in high-tax states. Those who detail the deductions cannot deduct more than $ 10,000 in property and income taxes.

However, the repeal of the SALT tax cap has been controversial, with opponents arguing that removing the cap could primarily benefit the wealthy.

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“Democrats, on the one hand, claim the rich are not paying their fair share, while also offering to give millionaires six-figure tax cuts,” Grassley said when considering his amendment.

According to the Tax Policy Center’s analysis, the richest 20% of earners would receive more than 96% of the benefits of a repeal of the SALT cap, and the top 1% of incomes would receive 57% of the benefits. In addition, the report shows that only 9% of American households would be affected.

Still, repealing the SALT cap has been a priority for some lawmakers, threatening to derail President Joe Biden’s economic agenda. Although the budget resolution framework mentions “SALT ceiling relief,” details are scarce.

“This is something that we have been following quite closely over the past few months,” said Garrett Watson, senior policy analyst at the Tax Foundation.

While the proposals are still unclear, the Tax Foundation has analyzed options, including increasing the cap by $ 10,000. An alternative may be to tie the write-off to income level, he said.

“The question is whether this will be acceptable to members of the House who ask a lot,” Watson said. “And will that be acceptable to people who are more skeptical, especially some progressives.”

The Tax Foundation estimates that a complete repeal of the SALT deduction limit could reduce federal revenues by $ 380 billion until 2025, when the provision ends.

Meanwhile, a growing number of states are now offering SALT cap workarounds for relay companies. These maneuvers allow some businesses to bypass the deduction limit by using a state levy to cover part of the owner’s state income taxes.