House panel votes to temporarily repeal SALT deduction cap

House panel votes to temporarily repeal SALT deduction cap
© Greg Nash

The House Ways and Means Committee on Wednesday approved legislation to temporarily repeal a controversial provision in President TrumpDonald John TrumpHealth insurers Cigna, Humana waive out-of-pocket costs for coronavirus treatment Puerto Rico needs more federal help to combat COVID-19 Fauci says April 30 extension is 'a wise and prudent decision' MORE’s 2017 tax-cut law, taking action on a key priority for many Democratic lawmakers in states such as New York, New Jersey and California.

In a nearly party-line vote, 24-17, the committee advanced a bill that would eliminate for two years the tax law’s $10,000 cap on the state and local tax (SALT) deduction. Rep. Tom ReedThomas (Tom) W. ReedOvernight Defense: Pentagon curtails more exercises over coronavirus | House passes Iran war powers measure | Rocket attack hits Iraqi base with US troops House passes measure limiting Trump's ability to take military action against Iran This week: Trump's budget lands with a thud on Capitol Hill MORE (R-N.Y.) joined with most Democrats in voting for the bill, while Rep. Stephanie MurphyStephanie MurphyPelosi scrambles to secure quick passage of coronavirus aid Sunday shows preview: State governors and top medical officials prepare for next week of COVID-19 response Members of House GOP leadership self-quarantining after first lawmakers test positive MORE (D-Fla.) voted with most Republicans against it.

The bill, unveiled late Monday, would do away with the cap for 2020 and 2021. It would also raise the cap for married couples to $20,000 for 2019, addressing the fact that under current law, the cap is $10,000 both for single filers and married couples filing jointly.

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Under an amendment offered by Ways and Means Committee Chairman Richard NealRichard Edmund NealDemocrats eye additional relief checks for coronavirus Judge puts new hold on Democrats' lawsuit seeking Trump tax returns MA lawmakers press HHS secretary on status of state's protective equipment MORE (D-Mass.), the bill also would increase the maximum amount of a deduction for teachers’ expenses from $250 to $500, and create a $500 deduction for expenses of first responders. The change for educators would take effect starting in 2019, while the deduction for first responders would take effect starting in 2020.

To offset the bill’s costs, the measure would raise the top individual tax rate from 37 percent to its pre-2017 tax law level of 39.6, and lower the threshold at which the top tax bracket begins. That change would be in effect for 2020 to 2025, after which time the individual tax provisions in Trump’s tax law, including the SALT deduction cap, expire.

Raising or eliminating the SALT deduction cap has been a top issue for many Democrats in high-tax states — including a number of freshman House Democrats who flipped Republican-held seats in 2018 and made the cap a key issue in their campaigns.

Democrats argue that their residents are being hurt by the SALT deduction cap, and that the cap makes it harder for their states to provide robust public services.

“The SALT cap hit my home state of New Jersey like an anvil from five stories up,” said Rep. Bill PascrellWilliam (Bill) James PascrellHispanic Caucus campaign arm unveils non-Hispanic endorsements Biden rolls out over a dozen congressional endorsements after latest primary wins Juan Williams: Will the GOP ever curb Trump? MORE (N.J.), one of the leaders of House Democrats’ efforts to repeal the cap.

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The bill has the backing of groups representing state and local governments, teachers and first responders.

But Republicans largely opposed the bill, arguing that most people even in high-tax states got a tax cut last year, and that repealing the cap largely benefits high-income taxpayers. 

Rep. Kevin BradyKevin Patrick BradyPelosi not invited by Trump to White House coronavirus relief bill's signing Democrat refuses to yield House floor, underscoring tensions on coronavirus vote Democratic leaders say trillion stimulus will pass House on Friday MORE (Texas), the top Republican on the Ways and Means Committee, said the bill “poisons our nation’s tax code and gives the green light to local politicians to brutally tax their constituents.”

“It is truly a tax cut for the wealthy,” Brady said.

Liberal tax-policy experts also argue that repealing the SALT deduction cap shouldn’t be a high priority for Democrats, given repeal’s benefits for people at the top end of the income spectrum. The left-leaning Center on Budget and Policy Priorities, Center for American Progress and Institute for Taxation and Economic Policy all released separate papers this week taking issue with Democrats’ bill, arguing that repealing the cap would provide little benefit to low- and middle-income taxpayers.

Reed, the sole Republican on the Ways and Means Committee who voted for the bill, said that there are many residents in his western New York district who are burdened by excessive property taxes and he’s “very sensitive to the loss of the deduction for those families that were not protected by the $10,000 cap, in particular those that suffer a penalty just because they’re married.”

Reed voted for Trump’s tax law and was one of the GOP lawmakers from high-tax states who worked to get a SALT deduction of up to $10,000 in the bill, as opposed to complete elimination of the deduction.

Murphy, the Florida Democrat who voted against the bill, said she represents a state without an income tax and that the SALT deduction cap doesn't affect residents of her state in the same way that it might affect residents of other states. She also said the SALT deduction cap is one of many portions of the GOP tax law that should be reviewed and that changes to the GOP tax law should be considered "comprehensively."

"In order to avoid the same mistakes Republicans made when conducting tax policy, we should not be addressing changes of this magnitude in a one-off manner," Murphy added.

The bill is expected to pass the Democratic-controlled House if it gets a vote on the House floor, but it would be unlikely to pass the GOP-controlled Senate.

The Ways and Means Committee also approved by voice vote a bipartisan bill to clarify a requirement for the Social Security Administration to mail annual statements to most working-age adults, while maintaining an option for workers to opt to receive the statements electronically.