Bipartisan lawmakers in high-tax states (e.g., California, New York) are pushing H.R. 613, the State and Local Tax Deductibility Act (SALT Deductibility Act), with proposal author Thomas Suozzi (R-CA) saying, “We will support President Biden’s 2.25 trillion infrastructure bill, but only if the SALT Deductibility Act is passed.”
The Tax Cuts and Jobs Act (TCA), passed in 2017, allows people to itemize deductions for up to $10,000 in state and local taxes paid each year when they file their tax returns. The SALT Deduction Act, which seeks to eliminate this cap and allow people to deduct all tax expenditures (including property taxes), is particularly supported by legislators in blue states with high tax rates and high costs of living, such as California and New York. The bill currently has the support of 96 Democratic lawmakers and 10 Republican lawmakers, who have co-sponsored the bill.
Sotts said that before the $10,000 maximum deduction was set, the average Long Islander in New York could deduct $20,000 in tax expenses per person, and nationwide, about 44 million Americans had used the tax law to deduct all of their tax expenses.
Rep. Eun Joo Park, Republican of California’s 48th District, said, “The $10,000 cap has cost residents in my district an average of $28,254 less in deductions, and I am calling for the cap to be lifted to preserve more hard-earned money for taxpayers.”
Rep. Mike Garcia (R-CA), a founding member of the SALT Deduction Act Caucus and a Republican member of the California 25th District, said, “Eliminating the deduction cap (on state and local taxes) has been my top priority since day one.” In addition to H.R. 613, Garcia introduced H.R. 202, the State and Local Tax Fairness Act, both of which are proposals to eliminate the deduction cap.
House Speaker Nancy Pelosi (D-California) said she would like to see SALT-related reforms, but that eliminating the cap would be costly and would benefit higher-income taxpayers. Rep. Josh Gottheimer, a New Jersey Democrat who co-chairs the 40-member SALT Deduction Act Caucus, said lifting the SALT deduction cap could cost the government $88.7 billion in lost tax revenue, but could be made up by cracking down on tax fraud.
The Tax Foundation asserts that residents of New York, New Jersey, Connecticut, California and Maryland would be the taxpayers who would benefit most from the SALT Deduction Act proposal. According to the Tax Policy Center, the top 20 percent of taxpayers will receive more than 96 percent of the benefits, while the top 1 percent of taxpayers will receive 57 percent of the benefits and only 9 percent of U.S. taxpaying households will benefit from the elimination of the SALT deduction cap.
Others believe that one of the reasons for California’s high cost of living is the high tax rates, with high personal income, property and excise tax rates, such as California gas prices that have reached an average of $4/gallon. According to the American Association of Retired Persons (AARP), California’s average excise tax rate is 8.68%, ranking 8th in the nation, but Tennessee, which ranks first in excise taxes at 9.95%, basically does not tax payroll income, only dividends and capital gains.
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