As debate on President Biden’s American Jobs Plan (AJP) and American Families Plan (AFP) takes shape, the question of whether the $10,000 state and local tax (SALT) cap will be repealed looms large for some taxpayers.
The SALT cap was added as part of the 2017 tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA). This cap limits individual income tax filers to a $10,000 maximum deduction for combined state and local income and property taxes. This cap has been unpopular in states such as California, Massachusetts, Connecticut, New Jersey, and New York since its inception. Because these states have higher tax rates, and often higher property values, this cap has affected both wealthy taxpayers and other taxpayers of more moderate means in these states. The prospects for sweeping legislation pursuant to the AJP and AFP are renewing hopes that a SALT cap repeal may be included.
Legislators from some of these states have pushed for a repeal of the SALT cap at every opportunity. For instance, Rep. Mike Sherrill (D-NJ) stated, “[I’ve] been working to get rid of the SALT cap since my first day in office and I’m confident that we’ll be able to find common ground with the Biden administration." And Rep. Tom Suozzi (D-NY) took it a step further, stating of his potential support for the AFP, “No SALT, no deal. I am not going to support any change in the tax code unless there is a restoration of the SALT deduction.”
But even with these and other pro-repeal advocates, it is not a sure thing. In recognition of this, some believe that that an increase to the $10,000 limit is more likely than a full repeal. Other legislators have also come out against full repeal, such as Senator Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY), who cite that the benefit of a repeal would flow primarily to wealthy taxpayers. Still other members of Congress have stated that repeal is not a priority.
The issue is that repealing the SALT cap would cost a significant amount of government revenue. Because budget reconciliation – a legislative process that cannot increase the nation’s deficit beyond a given time period – will likely be used to pass either or both of the AJP and AFP, the cost factor would complicate the inclusion of a SALT cap repeal in those legislative proposals.
The prospects for a full or partial repeal of the SALT cap remain highly fluid. Those interested in its fate will be keenly monitoring the status of the AJP and AFP to see whether it gets included in either of those proposals. For more information on the possibility for the SALT cap repeal and how it may impact your taxes, please contact us.
Published on May 18, 2021