New York, New Jersey Lawmakers Start Plotting SALT Cap Fix

Democrats and Republicans from states like New York and New Jersey are plotting to come together on a strategy for next year to roll back the state-and-local tax deduction cap.

Members of the bipartisan SALT Caucus in Congress are meeting ahead of expiration of the $10,000 cap of the tax break, imposed under the GOP’s 2017 tax law. The lawmakers are still working to get on the same page for tax talks next year, when the cap and many other of the law’s provisions expire.

While the group’s aim is to let the cap sunset, the approach will depend on who wins control of Congress and the White House in November, Rep. Mike Lawler (R-N.Y.) said.

“Obviously we’ll see what comes out in November and that’ll have a big impact on the tax bill,” Lawler said. “We’ll work through it as the tax bill gets negotiated, but this is a priority for all of us in the caucus.”

Republicans enacted the cap to help pay for tax cuts in their 2017 law. Many conservatives from red states have blasted the SALT deduction, saying it promotes high taxes in mainly Democratic-led states.

Full expiration of the $10,000 cap would make it harder for lawmakers to offset the cost of extending the 2017 law’s tax rate cuts.

Some SALT Caucus members acknowledge it’s unrealistic to let the cap fully expire. For Democrats, supporting full expiration may also mean going against the White House, if President Joe Biden were to win a second term.

An agreement from the bipartisan caucus on a proposal would help boost lawmakers’ push to modify the cap next year, after SALT deduction proponents from each party have separately tried and failed to raise the limit. The caucus consists of more than 30 House members, which could be a formidable force in the debate over the contours of a tax package next year if either party only has a small majority.

“We’re all aligned on restoring SALT and delivering much-needed tax relief for hardworking middle class families across the nation,” Rep. Josh Gottheimer (D-N.J.), one of the co-chairs of the caucus, said in a statement.

What’s Realistic

A smaller win for high-tax state lawmakers, like doubling the cap for joint filers, may draw more support from either party and be more palatable to lawmakers concerned about the cost of reverting back to the full SALT deduction.

“I think we’re not going to get it repealed, but I think we can get some improvements, hopefully increasing it and doubling it for married couples,” said Rep. Nicole Malliotakis (R-N.Y.), a member of both the SALT caucus and the tax writing House Ways and Means Committee. “Something that’s going to be realistic and on the table.”

Malliotakis has noted that other provisions also up for expiration at the end of 2025 should also be important for SALT Caucus members, like the higher standard deduction and the higher exemptions to the alternative minimum tax.

Rep. Anthony D’Esposito (R-N.Y.) emphasized that while he’d prefer to get rid of the cap altogether, he recognized that a compromise may be all they can achieve for the moment.

“Any steps that we can take to bring some relief to our neighbors is what we want to do,” D’Esposito said.

There’s some hurt feelings, too, reverberating from an effort earlier this year to vote on a provision to raise the cap for joint filers. New York Republicans demanded a vote on the measure after GOP lawmakers refused to add the proposal to a tax bill that passed the House in January. A procedural vote on the SALT bill failed, and D’Esposito called out Democrats from high-tax states for not jumping on board at that time.

Democratic Divide

Democrats have divisions of their own.

In June, White House National Economic Council Director Lael Brainard downplayed hopes to raise the cap, saying Biden doesn’t want to give the wealthiest Americans a tax break. Progressive Democrats have often criticized the SALT deduction as a giveaway to the rich.

Both the Tax Foundation and the Urban-Brookings Tax Policy Center estimate wealthier individuals tend to be the biggest beneficiaries of the SALT deduction. But that doesn’t mean others don’t benefit from the break, Democrats say. They also argue it avoids double taxation on income already taxed once.

“It’s working families. I’ll consider all kinds of options, but I oppose this idea of a double tax,” said Rep. Brad Schneider (D-Ill.), who wants full repeal of the cap.

Rep. Mikie Sherrill (D-N.J.) said Democrats should do everything in their power to ensure that the $10,000 limit expires. “Democrats in the House are going to have to work incredibly hard to make sure that we strip the cap out of any sort of tax bill,” she said.