Wednesday’s SALT Marriage Penalty Elimination Act would have lifted the cap to $20,000 for married couples for the current tax year. The cap would drop back to $10,000 next year. Under current law, it’s set to expire after the 2025 tax year.
The SALT deduction, even at the $10,000 cap, is mostly taken by wealthier tax filers, who earn enough to owe larger state and local tax bills and have sufficient other deductions that make it worth itemizing rather than taking the standard deduction, which is worth $27,700 for married couples filing jointly this year.
The nonpartisan Tax Foundation found that the vast majority of the benefits of doubling the cap would go to couples who earn more than $200,000 and that between a third and half of them would see a tax cut.
A group of four New York Republicans demanded a vote on the SALT bill in exchange for removing procedural barriers from another tax bill that would expand the child tax credit and restore some corporate tax breaks.
The state and local tax bill took on added significance ahead of Tuesday’s special election in New York, in which Democrat Tom Suozzi won his old House seat in a race to replace disgraced former congressman George Santos (R). SALT expansion played a meaningful role in the campaign because New York has relatively high state taxes.
Other Republicans have criticized the SALT proposal as a subsidy for taxpayers in Democratic-controlled states at the expense of those in GOP-run states with lower taxes.
The New York Republicans — and some Democrats — counter that blue states contribute far more to federal tax revenue than red states, and that blue state residents are taxed twice on much of their income: once by local jurisdictions and again by the federal government.
“I’m from a blue state, and I’m willing to concede to my red state colleagues especially that an increase in the SALT cap benefits blue states more than red states,” Rep. Nick LaLota, one of the four New York Republicans, said on the House floor Wednesday. “But as bloated and out of control as my state’s taxes and spending are under one-party Democrat rule, it cannot be said, truthfully, that red states are subsidizing the blue states. Blue states like mine are giving far more to Washington than we get back.”
Many Democratic-controlled states with higher local taxes do send more federal tax payments to the government than they receive in services each year, a study from the Rockefeller Institute of Government showed.
That dynamic has forged unorthodox alliances in Congress: Liberals from states that could benefit from a more generous SALT cap have teamed up with traditional anti-tax conservatives; Republicans from low-tax states have joined with progressives who oppose what they see as a tax cut for the wealthy at the expense of low-income earners.
Rep. Bill Pascrell Jr. (D-N.J.) attempted to amend the child tax credit bill to substantially raise the SALT deduction for both single and joint filers for multiple years. It failed to gain any Republican support.
Pascrell voted against advancing the SALT legislation Wednesday.
“This certainly is no way to enact tax policy. This is no way to treat tens of millions of Americans and communities,” he said on the House floor. “What we have before us is a fig leaf to paper over the fact that Republicans oppose middle-class tax relief.”
