Hopes for SALT Deduction Relief Rest in the Senate

The House passed the Build Back Better Act (BBBA) on November 19, 2021 and sent the bill to the Senate, where it will languish until it doesn’t. It will almost certainly be picked over and re-negotiated, but nothing is likely to happen until other government priorities are resolved, like the short-term spending bill that is needed to avert a government shutdown on December 3, 2021, and the bill to raise the debt ceiling by mid-December to avoid a government default.

Among the things being considered in the Senate is the state and local tax (SALT) deduction limitation. Recall that in late-2017 Republicans passed legislation limiting the ability of individual taxpayers to deduct state and local income and real estate taxes to $10,000 per year. The limitation was scheduled to expire in 2025. Democrats criticized the provision as a political move because it affected most heavily the Democratic-leaning states of New York, New Jersey, California, and Illinois.

The BBBA would raise the SALT deduction limitation from $10,000 per year to $80,000 per year from 2021 through 2030, lower it to $10,000 in 2031, and then eliminate it altogether. By its nature, the SALT deduction limitation affects high-earning taxpayers because it allows a deduction only for taxpayers that pay large amounts of income and real estate taxes to states and localities. Raising the cap is considered regressive in tax policy speak, and Senator Bernie Sanders (D–VT), among other progressives, objects to this. He has proposed to limit the increased cap to taxpayers making less than $400,000 per year, and would use the couple hundred billion dollars raised by the change to fund expanded dental and vision health coverage under Medicare. Senators from high-tax states like New Jersey have indicated they could support some limit on the expanded cap (e.g., to those making up to $550,000 per year), but they are threatening to withhold support for the BBBA if significant change to the cap is not made. Every vote is needed given the 50/50 split in the Senate.

This article was originally published by Daniel Mayo in Forbes on November 30, 2021. Click here to continue reading the full article in Forbes.