In a setback for residents of high-cost, high-tax states, a proposal to temporarily double the $10,000 cap on state and local tax deductions for married couples was rejected in the House on Wednesday. This cap, known as the State and Local Tax (SALT) cap, was implemented as part of the tax cuts passed by a Republican-led Congress during the Trump administration. The limitation has resulted in higher tax bills for many individuals in states like New York, New Jersey, and California, sparking a significant campaign issue in those regions.
The attempt to bring up the legislation for discussion was defeated in a procedural vote by a margin of 195 to 225. Even though the effort was unsuccessful, the vote provided Republican representatives in swing districts with an opportunity to demonstrate their commitment to securing tax relief for constituents grappling with the inability to fully deduct their state and local taxes. This issue holds particular significance for Republican members of the New York delegation, some of whom represent districts that President Joe Biden won in the 2020 election.
Curiously, the vote took place just one day after Democrats captured a House seat in New York, with Tom Suozzi winning the vacancy left by the expulsion of Republican Rep. George Santos. Representative Anthony D'Esposito, who serves one of those districts, interpreted the vote as evidence that Republicans are fighting for their constituents. The opposing Democrats used the debate as an opportunity to remind supporters of the bill that it was the Republican party that initially imposed the $10,000 cap. They also accused Republicans of using the vote as an election ploy to woo voters in New York.
Under the current law, the $10,000 cap applies to both single filers and married couples filing jointly. The proposed legislation, introduced by Representative Mike Lawler of New York, sought to double the cap exclusively for married couples filing jointly with an income of up to $500,000. This adjustment would have only applied to the tax year 2023. Lawler argued that the existing cap unfairly penalizes married couples. Prior to the implementation of the cap, nearly half of taxpayers in his district claimed the state and local tax deduction. However, that number has significantly reduced to only one in five taxpayers.
Lawler emphasized that this decrease has severely impacted high-cost states like New York, where the cost of living far exceeds the national average. Unfortunately for proponents of the bill, New York Democrats played a role in preventing its progress. Lawler criticized Democratic leader Hakeem Jeffries for urging colleagues to vote against the procedural rule, effectively blocking an up-or-down vote on the bill.
Remarkably, the issue of the SALT cap crosses party lines. Eighteen Republicans from states where the cap does not pose a problem for the majority of taxpayers also voted against considering the bill, signaling a broader divide. Meanwhile, every Democrat voted against advancing the legislation. Analysts have pointed out that eliminating the cap, or even doubling it for married couples filing jointly, would result in reduced federal revenues and increased federal deficits. Additionally, they argue that such an adjustment would primarily benefit higher-income households.
The $10,000 cap, along with other provisions of the 2017 tax bill, is set to expire on December 31, 2025. This expiration date positions tax policy as a crucial issue to be deliberated in the upcoming Congress. Lawmakers from heavily impacted states such as New York and New Jersey are likely to leverage this timeline to push for changes to the SALT cap. Ultimately, the fate of this limitation will depend on the negotiations and decisions of future lawmakers.
