The state and local tax deductions (SALT) debate is likely to drag on regardless of who wins Congress and the White House, the Wall Street Journal reported Tuesday.
Taxpayers who itemize deductions can get breaks for state and local income and property tax payments. In 2017, Republicans capped the deductions at $10,000 for married people to help offset other tax cuts, and the result was felt heavily by high-income residents in high-tax states.
While legislators from both political parties have felt pushback from their wealthy constituents, many see the next Congress as a window for adjustment when the deal expires in 2025. The unique aspect of the SALT cap is that it has divided it supporters and detractors regionally, and not necessarily by political party.
"It's a really hard issue to thread the needle on, and neither party's been able to figure out how to do it," Anna Taylor of accounting firm Deloitte, who was a tax aide to Senate Majority Leader Chuck Schumer, D-N.Y., told the Wall Street Journal.
Former Rep. Tom Reed of western New York helped negotiate the original deal and quickly became somewhat of pariah in the eyes of his colleagues in the city and wealthier suburbs. Opponents of the cap that reside in high-tax states like New York, New Jersey, and California could yield considerable bargaining power in what will be a slim majority regardless of which party takes control of the House.
"There's a natural landing pad for a deal," Reed said, hinting that some version of a cap that would impact fewer households. "It's just going to take a lot of theater and political gamesmanship to get there."
Former President Donald Trump signed the law in 2017 that created the cap but has since switched positions, hinting that he would support getting rid of the cap despite not offering a detailed plan. Vice President Kamala Harris favored the cap as a senator but has not addressed the issue during her presidential campaign.
The cap has been found to have implications, particularly for middle-class families in expensive areas. The Wall Street Journal referenced a study from economists Donald Bruce and Lawerence Kessler that found slower home-price growth in those areas most impacted.
"It was very much impacting the finances of middle-income families in these high-tax areas," Kessler said.
The bill will live or die based on where lawmakers think the most votes can be obtained.
"So much of the 2017 bill is going to be on the table," said Rep. Brad Schneider, D-Ill., a cap opponent and Ways and Means Committee member. "You turn one dial and others turn."