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Critiques Roll In After Pelosi Suggests SALT Cap Rollback

Posted on Apr. 1, 2020

Lawmakers and tax and budget analysts are slamming an idea floated by House Speaker Nancy Pelosi, D-Calif., to retroactively lift the $10,000 state and local tax deduction cap. 

Pelosi’s suggestion came in an interview with The New York Times published March 30, in which she said the proposal could be included in a fourth coronavirus relief measure.

“This is a non-starter,” said a spokesperson for Senate Finance Committee Chair Chuck Grassley, R-Iowa. “Millionaires don’t need a new tax break as the federal government spends trillions of dollars to fight a pandemic.”

If the SALT deduction cap — put into place by the Tax Cuts and Jobs Act — were reversed for 2018 and 2019, and taxpayers refiled their returns to receive more money from the government, “they’d have more disposable income, which is the lifeblood of our economy,” Pelosi told the Times.

Repealing the cap would mostly benefit the highest-income earners in high-tax states like New York and California. The Committee for a Responsible Federal Budget estimated in a March 31 blog post that a retroactive repeal of the cap would cost $130 billion, with about half of the benefit going to households earning more than $1 million. “Less than 6 percent of the benefit would go to taxpayers making under $200,000, and only 0.5 percent would go to those making under $100,000,” the group said.

“Maybe this will help them afford box seats at the Kennedy Center,” House Ways and Means Committee ranking member Kevin Brady, R-Texas, said on Twitter.

A spokesperson for Pelosi said her proposal would be narrower than a full rollback and would be focused on middle-income earners.

‘Poorly Targeted Relief’

While the provisions in the previous coronavirus aid packages passed by Congress have focused on relief for Americans and industries affected by the pandemic, and the next is expected to provide economic stimulus, Pelosi’s proposal doesn’t seem to help either.

The taxpayers who would benefit from a SALT cap rollback already have the resources to get through the current crisis, said Jared Walczak of the Tax Foundation.

“Elimination or raising of the SALT deduction cap is being sold as stimulus, but it looks more like relief — just poorly targeted relief for the highest-income and highest-net-worth Americans,” Walczak told Tax Notes.

Individual states would also see little value from a rollback, said Marc Goldwein of the Committee for a Responsible Federal Budget, who is skeptical that states would retroactively raise taxes for 2018 and 2019 to increase revenue as a result.

“Not a dime of it goes to states,” Goldwein told Tax Notes. “It goes to rich people in states, so there’s not even an indirect benefit. It will do virtually nothing to support the economy.”

Broad Support Unlikely

The House voted to temporarily repeal the SALT deduction cap in December 2018, but the bill stalled because Senate Republicans refused to support it. That’s unlikely to change anytime soon.

“Given how little relationship it has to addressing either" a global pandemic or economic crisis, "it seems unlikely that it would have picked up additional support now,” Walczak said.

Senate Finance Committee member Tim Scott, R-S.C., joined other congressional Republicans in criticizing the proposal, saying in a March 31 tweet that “Speaker Pelosi thinks a solution to fighting #coronavirus is to give billions in individual tax benefits to millionaires.”

Fellow Finance Committee member Patrick J. Toomey, R-Pa., said it was too soon to know what, if any, additional legislation will be needed.

“If we determine that another measure is necessary, it should not be the vehicle for Speaker Pelosi’s partisan, parochial wish list,” he said.

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