State, local relief not in cards for residents of high-tax states as House assesses Inflation Reduction Act
- After fighting to repeal the $10,000 limit on the federal deduction for state and local taxes, known as SALT, a group of House Democrats say they'll vote for the party's spending package without SALT reform.
- "Regarding SALT, the Inflation Reduction Act does not increase personal income taxes, and 'No SALT, no deal' does not apply," said Rep. Tom Suozzi, D-N.Y.
After fighting to repeal the $10,000 limit on the federal deduction for state and local taxes, known as SALT, a group of House Democrats say they will still vote for the party's spending package without SALT reform.
Reps. Josh Gottheimer, D-N.J.; Mikie Sherrill, D-N.J.; and Tom Suozzi, D-N.Y., members of the SALT Caucus who have vowed to oppose a bill without SALT relief, expressed support for the Inflation Reduction Act after it passed in the Senate.
Enacted through the Republicans' 2017 tax overhaul, the SALT cap has been a pain point for costly states like New York and New Jersey because residents can't deduct more than $10,000 in state and local taxes on their federal returns.
More from Personal Finance:
Reconciliation bill includes about $80 billion for the IRS
Inflation Reduction Act aims to trim insulin costs for Medicare users
IRS 'absolutely' will not increase audit scrutiny on middle-income earners
With a slim Democratic majority, SALT reform was a sticking point during Build Back Better negotiations, and the House passed an $80,000 SALT cap increase through 2030 in its spending package. However, the plan stalled in the Senate after pushback from Sen. Joe Manchin, D-W.Va.
'No SALT, no deal' does not apply, Suozzi says
However, SALT advocates have shifted since Senate Majority Leader Chuck Schumer, D-N.Y., and Manchin announced a late July deal on a reconciliation bill covering climate, health care and taxes.
"This legislation doesn't raise taxes on families in my District — it reduces the financial burden on them," Gottheimer said in a statement. "For that reason, and for its strong support of the climate, lower prescription drug prices and job creation, I'll be voting for it."
But "if someone tries to change the tax rates on families in my district, I will insist that we restore the state and local tax deduction," he added.
Sherrill and Suozzi shared similar positions, including their plans to vote for the bill.
"Regarding SALT, the Inflation Reduction Act does not increase personal income taxes, and 'No SALT, no deal' does not apply," Suozzi said in a tweet.
Recently, there have been other attempts to fight for SALT relief. The three lawmakers, along with Reps. Tom Malinowski, D-N.J.; and Katie Porter, D-Calif.; in May sent a letter to leaders of the House Appropriations subcommittee, asking to deny the IRS funds to block state-level SALT cap workarounds.
And the push for SALT reform faced a setback in April when the Supreme Court rejected a challenge to overturn the legislation.
Some argue SALT relief mostly helps the wealthy
While advocates say the SALT deduction limit hurts middle-class families, opponents contend removing the cap may primarily benefit wealthy homeowners.
If repealed completely, the top 20% of taxpayers may see more than 96% of the relief, according to a Tax Policy Center report, affecting only 9% of American households.
Without an extension from Congress, the $10,000 SALT limit will sunset by 2026 along with other provisions from the Tax Cuts and Jobs Act of 2017.