Democrats from high-tax states scored a symbolic victory Thursday as the House voted to repeal a politically fraught portion of President Donald Trump's tax law:
the cap on state and local tax, or SALT, deductions.
The legislation would repeal the $10,000 cap in 2020 and 2021, and raises it to $20,000 for married couples for 2019. The measure is offset by raising the top individual tax rate to 39.6% from 37%.
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Republicans, with Democratic support, amended the legislation at the last minute to prohibit those earning $100 million or more a year from deducting their entire state and local tax bill, a move that would prevent extremely wealthy taxpayers from benefiting from the more generous SALT allowance. The change also allows first responders and teachers and write off $1,000 for work-related expenses.
But taxpayers shouldn't call their accountants yet. Senate leaders have already said they won't bring up the bill and the White House has threatened a veto.
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The 2017 tax law capped the SALT deduction at $10,000 as a way to pay for some of the levy reductions in the law. The write-off was previously unlimited, though some higher-income people weren't eligible to claim it. Still, the change sparked ire from lawmakers from high-tax states saying Republicans targeted mostly Democratic states to pay for their tax law.
Since the overhaul, lawmakers from the high tax states most affected — including New York, New Jersey and California — have vowed to repeal the $10,000 cap. They argue that higher incomes and home values in those areas mean some middle class taxpayers are unable to deduct large portions of their SALT liabilities. The House passed the legislation 218-206, mostly on party lines.
"Republicans passed an irresponsible millionaires' tax cut that my constituents in New Jersey paid for," Democratic Rep, Bill Pascrell, said in reference to the 2017 tax law. "We have promised to undo the destruction on the middle class rendered by the Republican tax scam law."
Thursday's vote faces a backlash from Republicans and some Democrats who say the change would benefit high earners at the expense of the middle class. About 52% of the benefit from repealing the cap flows to households earning at least $1 million a year, the nonpartisan Joint Committee on Taxation found.
"Millionaires and billionaires will be glued to their screens to see how big their big tax break will be," Rep. Kevin Brady, the top Republican on the House Ways and Means Committee, said Monday. "This is overwhelmingly a tax cut for the wealthy and zero for the middle class."
Business groups have already begun mobilizing to oppose the SALT changes, saying the higher top tax rate will harm more taxpayers than the larger SALT deductions help.
In particular, some pass-through businesses, companies where the owners pay the business taxes on their personal tax returns, say the legislation could harm them.
The expanded tax breaks, netted with the revenue from the higher income tax rate, would raise about $2.4 billion over a decade, according to a congressional Joint Committee on Taxation report on the original bill.
"Some people have raised questions about the distributional effects and paying for it with an increase in the top marginal rate is an elegant way to address that," Rep. Ron Kind, a Wisconsin Democrats, said. "The Republicans have decided to weaponize the tax code to go after these blue districts through double taxation."
[More: SALT tax-cap challenge by New York and New Jersey is tossed]
