House Democrats dealt a symbolic blow to Republicans’ tax code overhaul Thursday that would do away with the $10,000 limit on the itemized deduction for state and local taxes for two years.
On a mostly party-line vote of 218-206, the bill was passed in the House.
The step, titled as “Restoring Tax Fairness for States and Localities Act” or HR 5377, proposes increasing the so-called SALT cap to $20,000 for married taxpayers who are filing jointly in 2019.
It also calls for the eradication of the SALT cap in the next two years.
Under the sponsorship of Rep.Thomas Suozzi, D-N.Y, along with Reps. Bill Pascrell, D-N.J., and Mike Thompson, D-Calif., the bill marked the latest effort by blue states to fight back against certain provisions in the Tax Cuts and Jobs Act.
The reformation in the 2018 tax code placed the $10,000 cap on SALT deductions.
Nicole Kaeding, vice president of policy promotion at the National Taxpayers Union Foundation said that this was always a matter of top priority for Democrats in the House since the Tax Cuts and Jobs Act was passed. There is no chance that this bill is getting through the Senate, but I think Democrats will continue to talk about the impact of the SALT deduction.
She further said that the concern has been over the impact of the limit on individuals in high-tax states such as New York, New Jersey and California.
Despite of the fact, that the bill is unlikely to get much further in the remaining weeks of the year, there’s always the possibility it may return in 2020.
Commenting on the bill, Rep. Josh Gottheimer said that this is going to continue to be an issue that comes up every year until we pass and sign it into law. It’s a hit to so many parts of the country, a tax hike for my district and for a lot of us in the Northeast and on the coasts.
He added that he is not willing to give up on this version [of the bill] until there is actually something possible to convince the Senate to include it.
California, New York and New Jersey are among the states where taxpayers are feeling the brunt from the $10,000 SALT cap.
The average SALT deduction claimed was $23,804 among New Yorkers who itemized in 2017, according to the Tax Policy Center.
Californians claimed $20,451, the Center found, while New Jersey itemizers wrote-off an average of $19,162 on state and local taxes that year.
These states are also home to some of the highest income taxes in the nation. At the same time, the residents of New Jersey are paying some of the highest property taxes.
The SALT cap controversy also has spurred litigation by the affected states.
New York, Connecticut, Maryland and New Jersey have filed suit against the Treasury Department and the IRS, asserting that the SALT deduction limit was unconstitutional.
Separately, New York, New Jersey and Connecticut are also fighting the Treasury Department and the IRS in court over the agencies’ move to block workarounds established by the three states.
Rising tax rates
Rep. Tom Suozzi’s bill also calls for raising the highest marginal individual income tax rate.
With the Tax Cuts and Jobs Acts, individual income tax rates across the board were slashed, lowering the top rate for the highest earners to 37% from 39.6%.
The proposed legislation would reduce the income threshold at which the top rate would apply and raise the rates back up to 39.6% for the highest earners.
