Tax deductions

Congressional leaders push for resumption of full tax deductions at state and local levels

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Serious efforts are underway in Washington to lift a limit imposed by former President Donald Trump’s 2017 tax law on the amount people can deduct from state and local income taxes on their federal return.

Some Democrats warn they will oppose tax code changes – changes President Biden wanted – unless the limits are repealed.

Both congressional leaders come from high tax states where removing the current limits on SALT deductions would be a big deal. “I am a big supporter of their position” on repeal, House Speaker Nancy Pelosi, D-Calif., told reporters last week. Senate Majority Leader Chuck Schumer, D-New York, also lent his support.

Democratic governors too. in hard-hit states.

Governor Gavin Newsom and six other governors sent a letter to Biden on Friday saying “on behalf of our residents, we urge your administration and Congress to continue these efforts to ease this immense financial burden on our residents and completely eliminate the SALT cap. “.

The Republicans-drafted tax reduction law of 2017 imposed a cap of $ 10,000 on state and local tax deductions.

“From a political standpoint, our goal was to make sure that domestic taxpayers did not subsidize big spending in many mostly liberal states,” said Senator Charles Grassley, R-Iowa, one of the leading Senate Republicans responsible for drafting taxes. Finance Committee told the Sacramento Bee last year.

Big local impact

Change hits california, whose income tax rates are the highest in the country, especially hard. The impact on local areas, according to the non-partisan Tax Policy Center:

â–ª The 3rd Congressional District, north and west of Sacramento, had the deduction on 33.5% of 2016 returns. The average deduction was $ 11,577.

â–ª 4th district, east of Sacramento and in the foothills of the Sierra. In 2016, 45.3% of 2016 returns benefited from the deduction, which averaged $ 14,286.

â–ª 5th District, Napa County, much of Sonoma County and some neighboring communities. 37.3% took an average deduction of $ 14,157 in 2016.

â–ª 6th Arrondissement, Sacramento, 28.1% of returns and took an average deduction of $ 10,019 in 2016.

â–ª 7th District, South and East District of Sacramento County, 39% of returns took the 2016 deduction and averaged $ 12,081.

â–ª 10th District, northern San Joaquin Valley, 31.5% of returns took the 2016 deduction and averaged $ 10,845.

â–ª In Borough 22, parts of Fresno and Tulare counties, 30.5% of returns benefited from the 2016 deduction, an average of $ 11,726.

â–ª 24th District, includes San Luis Obispo County, 35.1% took the 2016 deduction, for an average of $ 16,462.

A break for the rich?

The attempt to restore full deduction is met with strong opposition – and a dilemma for Democrats.

Opponents argue that the repeal of the deduction is a big tax break for the rich because they get most of the benefit from it, exactly what Democrats have been fighting against for years.

The non-partisan Tax Policy Center found that the richest 1% of households, those earning $ 755,000 or more, would reap more than 56% of the benefits of the repeal.

“It just shifts the tax burden to low-income people who don’t have significant state and local taxes to pay, and it takes away the wealthy people who do,” said Senator Pat Toomey, R-Pa.

Non-partisan experts often agree.

“Removing the SALT cap is truly one of the most regressive tax cuts we could think of,” said Maya MacGuineas, chair of the Committee for a Responsible Federal Budget.

The non-partisan Tax Policy Center found that the richest 1% of households, those earning $ 755,000 or more, would reap more than 56% of the benefits of the repeal.

Why Democratic States Want The Ceiling Raised

Lawmakers in the most affected states, including the northeastern states and California, counter that it is the middle class of the states that would benefit.

The current system is truly double taxation, said Rep. John Larson, D-Conn., A senior member of the Ways and Means Tax editorial board.

The federal tax code recognized that people were already paying state and local taxes for public and local services. By ending the deduction above $ 10,000, “you’re taxed again for it,” he said.

Biden has proposed raising corporate taxes and is expected to seek higher tax rates for the wealthy. It is still unclear whether the repeal will end up in law.

“It was petty initially, politically targeted… it was a mess,” Pelosi said of the 2017 action. “But hopefully we can include it in the bill. never give up hope for something like this.

Key invoice writers will not take any specific action.

Senate Finance Committee Chairman Ron Wyden, D-Oregon, said there were so many tax elements to consider, “I think that will be part of one of those efforts.”

The key to all of this is the White House, and Press Officer Jen PsakI am circumspect.

“It would cost more,” she told reporters. “(If) they want to come up with a way to pay for it, and they want to put it forward, we’re happy to hear their ideas.”

This story was originally published April 6, 2021 5:00 a.m.

David Lightman is McClatchy’s chief congressional correspondent. He has been writing, editing and teaching for nearly 50 years, with stops in Hagerstown, Riverside, California, Annapolis, Baltimore and since 1981, Washington.