President Suggests Openness to Changing SALT Cap, But Senate Republicans Disagree

Chris Gaetano
Published Date:
Feb 8, 2019

The president, in a recent media interview, suggested an openness to changing the state and local tax (SALT) deduction cap that, as part of the Tax Cuts and Jobs Act, reduced the previously unlimited deduction to a $10,000 maximum, according to Bloomberg. The SALT cap had been one of the most contentious aspects of the TCJA, but because of budgetary rules, the legislation would not have been able to pass without it. Since the bill's passage, though, the president said that people from New York and other high-property tax states have been imploring him to do something, which he said he is open to.

Bloomberg noted that the SALT cap affects mostly Democratic states, which led New York  Gov. Andrew Cuomo to decry the measure as tantamount to economic warfare against blue states, saying it "uses New York and California as piggy banks to finance tax cuts for Republican states."  In response, many states, including New York, explored the use of charitable deductions to state-owned nonprofits as a workaround, but the IRS has issued guidance that would effectively nullify the use of charitable contributions to get around the $10,000 cap, saying that this tax benefit represents a quid pro quo that invalidates charitable contributions. 

Bloomberg said that lifting the cap would cost $673 billion over a decade, which in turn might require tax increases in other areas, such as the corporate income tax, in order to compensate. For this reason, among others, Senator Charles Grassley (R-Iowa), who chairs the Senate Finance Committee, said that lifting the cap is a nonstarter. Such a move, he said, would mainly just benefit the wealthy in those states. He suggested, instead, that states lower their taxes. But New Jersey Democratic Senator Bill Pascrel said that Grassley didn't know the facts, and that it's not just the ultra-wealthy who are hurt by the cap. 

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