() President-elect Donald Trump is open to raising the state and local tax cap, a tax code provision that affects wealthy households in Democrat-run states, but the move could prove costly.
U.S. lawmakers are considering changes to the $10,000 SALT deduction cap as part of their efforts to extend the expiring parts of the 2017 Tax Cuts and Jobs Act.
The state and local tax, or SALT, deduction allows taxpayers who itemize when filing federal taxes to deduct certain taxes paid to state and local governments.
The Committee for a Responsible Federal Budget said raising the SALT cap could reduce revenue by $170 billion. That’s on top of the nearly $4 trillion cost of extending the provisions of the 2017 Tax Cuts and Jobs Act.
Recent talks have centered on increasing the cap from $10,000 to $20,000 for married tax filers. CFRB noted “it would also further increase the deficit effect of TCJA extension, provide a windfall to higher earners in high-tax states, and undermine tax simplicity.”
Households making more than $200,000 a year in high-tax states like New York and California would get 94% of the benefits of raising the cap, according to CFRB research.
Before the 2017 TCJA, 91% of the benefit of the SALT deduction was claimed by people with income above $100,000 and concentrated in six states: California, New York, New Jersey, Illinois, Texas and Pennsylvania, according to the Joint Committee on Taxation.
Blue-state Republicans left a meeting with Trump confident in the president-elect’s support of raising the $10,000 cap on state and local tax deductions, Roll Call reported Monday.
“He gave us the homework to identify a number that could work and cover the vast majority of the middle-class families that we represent,” Rep. Nicole Malliotakis, R-N.Y., told Roll Call.
“What is the number that would provide relief for our middle-class families that can get consensus so we can reach the 218 [votes threshold] and that works within this Rubik’s cube of reconciliation within the topline number that we’re provided by the Budget Committee?,” she added. “That’s the real question.”
