SALT tax caps are a problem in infrastructure planning negotiations

When Democrats and Republicans come up with infrastructure plans, tax deductions that are not directly related to roads, bridges, airports, or other traditional infrastructure are at the forefront of what is already expected to be a complex negotiation process in the future. It is a central issue.

As part of President Donald Trump’s 2017 tax reform, state and local tax deduction caps (commonly known as SALTs) have been enacted. Taxpayers can deduct up to $ 10,000 in state and local taxes paid on federal income tax returns. For couples applying separately, the limit is $ 5,000. Previously, I was able to deduct the full amount.

Tax experts say removing the cap will greatly benefit wealthy Americans, but those affected by it live primarily in the blue states. Some Democrats say there is no deal unless the infrastructure package includes the removal of the cap as part of the bill.

Republican senators announced their own infrastructure framework on Thursday in response to President Biden’s US employment program. It especially requires keeping the cap.

The centre-right Tax Foundation estimates that the removal of the cap (which will expire in 2025) will reduce federal revenues by about $ 380 billion over a decade. We also found that the top 1% could maintain 2.8% of after-tax revenue, and the bottom 60% had little profit even if they were abolished.

Similarly, the leftist tax policy center found that 96% of the profits from removing the cap go to the top 20% of households. 56% of the benefits are in the top 1%.

However, the impact of the cap depends on the state in which the taxpayer lives. In states where people make more money, taxes tend to be higher. This means that taxpayers will have a higher tax burden if state and local taxes cannot be deducted. Similarly, states with higher asset values ​​have higher property tax rates, so caps have a greater impact on taxpayers living in those states.

“Even if it’s the same house in New Jersey and Kansas, it’s likely to reach that limit in New Jersey,” said Garrett Watson of the Tax Foundation. “It’s a really big difference, and people’s experiences are so different that it’s hard to reach an agreement on this deduction.”

The Tax Foundation has found that SALT deductions are more valuable in places such as California, New York, New Jersey, Maryland and Virginia. Not very valuable in North Dakota and South Dakota, or Wyoming.

After Republican Senator announced the infrastructure plan, New Jersey Democrat Mikie Sherrill called the plan a non-starter, especially with the aim of limiting SALT’s dedication.

“It explicitly excludes changes to the SALT deduction limit, which excludes decisive relief for middle-class families in my district,” she said in a statement. “With the support of the recently announced bipartisan SALT Caucus in the House, it’s more clear than ever that packages that don’t support the SALT deduction limit won’t move.”

The White House has indicated that it is ready to lift the SALT deduction cap, but lawmakers need to figure out ways to offset the increased loss of income.

On Wednesday, Congressman Josh Gottheimer sent a letter to Treasury Secretary Janet Yellen urging the abolition of the SALT deduction limit. Democrats in New Jersey said they could pay it by bridging the tax gap, and IRS commissioners recently suggested that much of the $ 1 trillion tax would not be collected each year.

“Narrowing the tax gap not only funds the full return of SALT deductions to hard-working families in New Jersey, but also provides substantial resources for infrastructure spending and long-term tax affairs. It will promote compliance, “he wrote. “All this is achieved without increasing family tax rates and tax complexity, and there is no risk of jeopardizing economic recovery as we strive to overcome the COVID-19 pandemic.”

Democrats currently hold only four seats in the House of Representatives than Republicans. That is, there is little way to move the infrastructure forward without bipartisan support or the participation of all but two members of the Democratic rally.

SALT tax caps are a problem in infrastructure planning negotiations

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