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House passes bill restoring SALT deduction; Trump threatens veto

WASHINGTON – The House of Representatives on Thursday voted to restore a tax deduction for state and local taxes, a move that could save thousands of dollars each year for higher-income New York homeowners.

But that possibility appears doomed in light of a Trump administration veto threat.

By a 218-206 margin, lawmakers adopted a bill that would expand the cap on the federal deduction for state and local taxes from $10,000 to $20,000 for the current tax year and eliminate it entirely for 2020 and 2021. To pay for the change, the legislation would increase the top personal tax rate from 37% to 39.6%, which is what it was before the 2017 Republican tax overhaul that set that $10,000 SALT cap.

Rep. Brian Higgins, a Buffalo Democrat and a member of the tax-writing Ways and Means Committee, was among the lawmakers who pushed for the bill's passage. He said it would end the unfair double taxation that New Yorkers suffer under the Republican tax bill passed in 2017.

"There are many issues with the Republican tax scheme, but the $10,000 state and local tax deduction cap is one of the most egregious," Higgins said.

Most House Republicans disagreed and sided with President Trump's Office of Management of Budget, which recommended late Wednesday that President Trump veto the measure.

"This legislation would unfairly force all federal taxpayers to subsidize a tax break for the wealthy, as well as excessive government spending by fiscally irresponsible states," the Trump budget office said.

SALT deduction (updated 12/19/19)

There's no doubt, though, that restoring the SALT deduction in full would have a major impact in Western New York. According to figures compiled by the House Ways and Means Committee, 34,420 tax filers in Higgins' district reported incomes of more than $100,000 in 2017 and paid, on average, more than $10,000 in state and local taxes -- meaning the limit on the deduction probably cost them money when it was implemented last year.

In the district formerly represented by Rep. Chris Collins, 57,810 tax filers fit into that category of families likely affected by the SALT cap.

And in the Southern Tier/Finger Lakes district represented by Rep. Tom Reed, 29,620 tax filers likely saw their federal taxes increase because of the SALT cap.

Reed worked to get that $10,000 cap inserted in that 2017 tax bill as an alternative to a Republican-led effort to eliminate the SALT deduction entirely. But on Thursday, Reed voted for the bill that would restore the deduction in full.

"I'm very sensitive to the loss of the deduction for those families that were not protected by the $10,000 gap," Reed, a Republican from Corning, said when the bill passed the Ways and Means Committee last week.

Sixteen Democrats -- including Rep. Alexandria Ocasio-Cortez, a prominent progressive from the Bronx -- voted against the measure.

"This SALT bill does’t bring things back to the pre-GOP norm we’re used to. Due to expansion of the standard deduction, folks who want to claim SALT now need to pay ~$24k+ in state and local to get it. For those families just over that, the benefit may not be as high," she said on Twitter. "There are ways to restructure SALT deductions to provide relief to middle class families - and there are several different SALT repeal bills in the House...With another pass, I think we can get this done right."

Only five Republicans – three from New York, one from New Jersey and one from Pennsylvania – voted for the measure. Instead, many Republicans portrayed the measure as a gift to fiscally irresponsible state and local governments.

"This bill is a tax cut for the wealthy and a green light for state and local politicians to raise taxes on local families even higher," said Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee.

That's not how New York Gov. Andrew M. Cuomo sees it. He's worked with the governors of other states to press for the deduction's restoration, and he lauded the House passage of the bill that would do so.

“The Trump administration’s SALT policy was a politically motivated economic assault on New York," Cuomo said after the vote. "As the number one donor state, New Yorkers are sick and tired of being used as ATMs, footing an additional $15 billion each year that will be redistributed to red states and big corporations."

Despite the Trump veto threat, Higgins said it's still possible that the measure could become law if the Senate were to pair it with other legislation. Discussions are under way with Sen. Charles Grassley, the Iowa Republican who chairs the Finance Committee, to see if there is a way that can be done, Higgins said.

Under the House bill, the $10,000 SALT cap would reappear in 2022, but supporters of the measure expect that Congress would renew it before that if it were to become law.

It's clear, though, that most House Republicans don't want that to happen.

Rep. Tom Rice, a Republican from South Carolina, said that 94% of the benefit of the bill would go to families with incomes among the 10% highest in the nation.

"This is a plain giveaway to the rich," Rice said of the bill.

 

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