Though the U.S. House of Representatives continues to work through the ongoing impeachment proceedings, the Chamber has apparently found time to produce a proposed tax bill that would primarily serve to increase (at least, temporarily) the dollar limitation on deductible state and local income taxes (SALT) for individuals. It appears that a House vote to increase the $10,000 SALT cap enacted under President Trump’s Tax Cuts and Jobs Act (TCJA) is likely before year’s end, according to some House Democrats.
Although not yet formally released (but could come as early as next week), the proposed House Democrats’ bill is expected to temporarily increase the SALT cap to an undetermined figure (lawmakers estimate between $15,000 and $30,000). The bill is also expected to fast-track the increase of the top marginal income tax rate for individuals back to 39.6% (currently scheduled for 2026 under the TCJA) and to eliminate the “marriage penalty” against joint filers, who now have the same deduction limit of $10,000 as single filers.
The limitation of the SALT deduction for state and local income taxes imposed by the TCJA has put Democratic legislators in an unusual position. Those hurt most by the limitation are taxpayers living in states with high income tax rates and cities with high real estate property taxes (such as Los Angeles, Boston, Chicago and New York City). However, since these locales are predominantly Democrat, the majority House members find themselves advocating for a tax cut for the very wealthy.
The nonpartisan Joint Committee on Taxation (JCT) has estimated that in 2019 over 40% of the tax benefit received from repealing the SALT cap would go to households with annual income over $1 million. Similarly, the widely considered left-leaning Tax Policy Center (TPC) has estimated that over 50% of the benefit received from repealing the SALT cap would go the top 1% of households.
In addition to those matters noted above, lawmakers also continue bipartisan discussions on a variety of tax extenders and TCJA technical corrections, which are expected to be attached to a year-end appropriations package. While those measures are expected to receive some bipartisan support, any bill to scale back or repeal the TCJA’s SALT cap will likely not move forward in the Republican-led Senate if the cost is higher income tax rates on the wealthy.
The likelihood of significant changes being enacted before year-end is slim since the House is scheduled to adjourn on December 20, and Congress has yet to reach an agreement for fiscal year 2020 appropriations. Government funding under the current “stop-gap” spending bill keeping the government open is set to expire on December 21.
Grossman Yanak & Ford LLP will continue to monitor any progress that is made on these or other tax issues. If you have questions or comments, please contact Bob Grossman or Don Johnston at 412-338-9300.