Bills
| 3.23.22

Should the SALT Deduction Be Restored & Paid for By Raising the Top Income Tax Bracket? (H.R. 1142)

Do you support or oppose this bill?

What is H.R. 1142?

(Updated January 21, 2020)

This bill — the Stop the Attack on Local Taxpayers (SALT) Act of 2019 — would fully restore the SALT deduction. It would also restore the top income tax rate to 39.6 percent, the rate at which upper income was taxed prior to passage of the Tax Cuts and Jobs Act (TCJA).

Argument in favor

The state and local tax (SALT) deduction is an important source of tax relief for residents of high-tax states, such as New Jersey. The SALT deduction cap hurts the middle class in high-tax states, and should be restored to ensure that families living in high-tax states aren’t punished for where they live.

Argument opposed

The SALT deduction primarily benefits those who are upper middle class or better and isn’t a major factor for most middle class families, most of whom don’t itemize their tax returns (and therefore can’t claim the SALT deduction). Eliminating the SALT deduction cap increases the deficit to help the rich.

Impact

Taxpayers who previously claimed over $10,000 in SALT deductions; top individual income earners; and the IRS.

Cost of H.R. 1142

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Bill Pascrell (D-NJ) introduced this bill to repeal the federal cap on state and local tax (SALT) deductions and the top individual income tax rate to 39.6 percent, the rate at which upper income was taxed prior to passage of the TCJA (under the TCJA, the maximum tax rate is 37 percent):

“The Trump tax scam law specifically targeted [New Jersey] by capping the State and Local Tax deduction. The vast majority of those claiming the deduction are middle-class households, especially in New Jersey, and the deduction helps local governments raise revenue for needed projects. In my district alone, 37 percent of taxpayers claim the deduction, to the tune of nearly $19,000 on average. That’s not small change.  So this tax season, many of my constituents are taking a hit on their tax bills. Everything from our housing market to our ability to finance infrastructure and public safety will be hurt. The bipartisan SALT Act of 2019 will restore tax fairness for New Jersey and will be my top priority this Congress.”

Sen. Bob Menendez (D-NJ), sponsor of the Senate version of this bill, adds:

“We’re just two weeks into the tax-filing season, and thousands of taxpayers across New Jersey are now fully realizing how bad the Trump Tax Law and it’s gutting of the property tax write-off is for them and their families. We know all too well that New Jersey is a high cost state, where families face high property tax bills and high cost of living.  Well, our bill is designed to provide some relief. Generally speaking, the more you pay in property and state taxes, the more relief you’ll get from our bill. Allowing property taxes to be fully deducted has been a bedrock principle of our tax code and is commonsense tax policy that rewards states that invest in things like education, public safety, infrastructure and economic opportunity for all.”

In early February 2019, President Trump said he was “open to talking about” SALT revisions. In a White House meeting with a small group of regional reporters, he said, “There are some people from New York who have been speaking to me about doing something about that, about changing things. I’d be open to talking about it.” However, he didn’t specify what changes he’d be open to.

Senate Finance Committee Chairman Chuck Grassley (R-IA) has made his opposition to raising the SALT cap clear. After President Trump made his comments on being “open to talking” about this issue, Sen. Grassley’s spokesman, Michael Zona, said, “The Senate Finance Committee won’t be revisiting the SALT deduction reforms made in the Tax Cuts and Jobs Act under Chairman Grassley’s leadership.” Zona added:

“It’s ironic that the same Democrats who criticized the Tax Cuts and Jobs Act for supposedly benefiting only the wealthy are now advocating for a change to the law that would primarily benefit the wealthy.”

Finally, Zona argued that instead of raising the SALT deduction at the federal level, states should instead lower their own taxes.

This bill has 45 bipartisan House cosponsors, including 44 Democrats and one Republican (Rep. Chris Smith, the New Jersey’s delegation’s only Republican congressman).  A Senate version has also been introduced, sponsored by Sen. Bob Menendez (D-NJ). It has 14 Democratic Senate cosponsors. Most of New Jersey’s Congressional delegation has signed on to support this bill in both the House and Senate. AFSCME, the National Association of Counties, and the US Conference of Mayors have sponsored this bill.


Of Note: The Tax Cuts and Jobs Act capped the state and local tax deduction at $10,000 for individuals and $5,000 for married couples filing separately, in part because the standard deduction was doubled to $12,000 for individuals and $24,000 married couples with joint returns — meaning fewer taxpayers would need to itemize and claim the deduction. Prior to the enactment of this Republican tax law, taxpayers who itemized could deduct their state and local property and income taxes without limitation.

The state and local tax deduction can only be claimed by taxpayers who itemize their returns, so it generally benefits higher earning taxpayers. According to data from our partners at USAFacts, a non-partisan civic data initiative, the average tax savings from claiming the deduction per return in 2015 for taxpayers making less than $61,000 was $144; whereas taxpayers making more than $113,000 saved $1,569 on average and the top 1% of taxpayers saved an average of $21,723. In 2017, data from USAFacts put the total amount of taxes deducted using SALT at $104.1 billion.

Rep. Pascrell’s office disputes the assertion that the SALT deduction largely benefits the wealthy, saying that it in fact benefits middle-class families earning under $200,000:

“The SALT deduction allows taxpayers to write off taxes paid at the state and local level from their federal income tax bill so they won’t be subject to being taxed twice on the same dollar.  In addition to helping families avoid double taxation, the SALT deduction supports the ability of communities, cities, and states to raise their own revenues and fund critical investments in public education, infrastructure, social services, and public safety.”

To back up its assertion, Rep. Pascrell’s office cites a survey of over 300 New Jersey-based CPAs by the New Jersey Society of Certified Public Accountants (NJCPA), in which over 63 percent of respondents said their individual and family clients earning less than $200,000 would see their federal tax bill rise as a result of the SALT cap. In Rep. Pascrell’s home district, the average family pays $18,000 in annual property taxes — the full amount of which would have been deductible from their federal taxes prior to the TCJA’s passage.

However, the Urban-Brookings Tax Policy Center estimates that the top one percent of taxpayers would reap around 56 percent of the benefits if the SALT cap were to be repealed.

Analyzing this bill, the Tax Foundation found that repealing the SALT deduction cap and raising the top tax rate to 39.6 percent would reduce federal revenue by $532 billion over the next ten years. In the same analysis, the Tax Foundation also found that this proposal would “almost exclusively provide tax relief to the top 20 percent of income earners,” with the largest cut of savings going to the top one percent of earners.


Media:

Summary by Lorelei Yang & Eric Revell

(Photo Credit: iStockphoto.com / mphillips007)