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U.S. House Ways and Means Approves Temporary SALT Cap Repeal

Posted on Dec. 12, 2019

The U.S. House Ways and Means Committee has approved a temporary repeal of the $10,000 cap on the state and local tax deduction, but Republicans said the bill has no chance of passing Congress this year.

“This bill has no shot in the Senate, and there’s no point in marking this bill up before the end of the year, but here we are,” said committee member Jackie Walorski, R-Ind.

In a 24-17 vote along party lines, the committee on December 11 approved an amended version of H.R. 5377, the Restoring Tax Fairness for States and Localities Act, introduced two days earlier by committee member Thomas R. Suozzi, D-N.Y.  

The measure would double the SALT deduction cap to $20,000 for married couples filing jointly for tax year 2019 and then fully repeal the cap for tax years 2020 and 2021. The bill would represent a partial repeal because the Tax Cuts and Jobs Act imposed the cap through tax year 2025, and H.R. 5377 would revert back to the cap starting in 2022.  

H.R. 5377 would fully pay for the cost of the partial repeal by reinstating the top 39.6 percent marginal individual income tax rate through 2025; the TCJA lowered the top marginal rate to 37 percent. The Joint Committee on Taxation estimated that the partial repeal of the SALT cap would cost $184.5 billion over 10 years but that the proposed rate increase would generate $190.7 billion, resulting in a net $6.2 billion revenue increase over a decade.

House Ways and Means Committee Chair Richard E. Neal, D-Mass., offered the amended version of H.R. 5377 that the committee passed. His newly added provisions would increase from $250 to $500 above-the-line deductible expenses for educators and would create a comparable deduction for first responders.

The committee rejected seven amendments offered by Republicans, including one from Rep. Jodey C. Arrington, R-Texas, that would have ensured that the increase in the top marginal rate would not apply to the qualified business income of small businesses. Other rejected amendments included provisions that would have eliminated the rate increases, prevented wealthy individuals from benefiting from the increased SALT deduction, and sunset H.R. 5377 if state and local governments increased property taxes in the aggregate following enactment of temporary repeal of the cap.

Nearly two hours of the markup featured Democrats arguing that the measure proves they are committed to providing tax relief to middle-income earners and Republicans countering that the bill is regressive and would benefit primarily the wealthiest households.

Ways and Means ranking member Kevin Brady, R-Texas, a longtime opponent of repealing the SALT cap, said Democrats not only are championing “a huge tax cut for millionaires and billionaires” but would provide “a green light to local politicians to brutally tax their constituents” by lifting the cap on the federal SALT deduction.   

Committee member Mike Thompson, D-Calif., said the SALT cap raised more than half of the TCJA’s revenue and that Congress passed the limitation without holding a public hearing. Another member, Rep. Bill Pascrell Jr., D-N.J., said the TCJA “remains one of the most destructive bills we’ve ever seen because it specifically went after the middle class,” principally by capping the SALT deduction. 

“The SALT cap hit my home state of New Jersey like an anvil from five stories up,” Pascrell said, adding that the average value of all New Jersey families’ SALT deduction was $19,162 in 2017. Suozzi said that nationwide, the average SALT deduction pre-TCJA exceeded $10,000 in 25 states and the District of Columbia, and that more states will become affected because the cap is not indexed for inflation. 

One issue not addressed during the markup is whether the House will hold a floor vote on the SALT cap measure before it is scheduled to wrap up work December 20, when issues likely taking precedence include the articles of impeachment against President Trump and the trade deal between the United States, Mexico, and Canada.

Pascrell said he was pleased with the outcome of the hearing and hopes a floor vote will occur by next week. Thompson was more confident with his prediction, telling Tax Notes that he expects a floor vote in the week of December 16.

Neal has said he wants a floor vote to happen before the new year. “I don’t think it should spill into next year,” he said in early December.

Jad Chamseddine contributed to this article.

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