Democrats Considering Repealing SALT
Deduction Cap via Pandemic Relief Bill

COVID-19 Business Update
Tax Group

Democrats in Congress are considering adding a provision to the next pandemic relief bill that would repeal the $10,000 federal cap on deductions for state and local tax, which was imposed as part of the Tax Cuts and Jobs Act.

Congress included the cap on SALT deductions, which had previously been unlimited, in the Tax Cuts and Jobs Act (TCJA) to get the bill to fit certain budgetary constraints. But since the states that would be most affected were ones generally friendlier to Democrats, some Democratic leaders, such as New York Gov. Andrew Cuomo, saw the provision as a targeted punishment of those states. Following the TCJA’s passage came a panoply of proposed workarounds, most of which were nixed by the IRS save for, this year, when it blessed a method involving pass-through entities.

But now Senate Majority Lead Chuck Schumer (D-N.Y.) has introduced a measure repealing the cap entirely, and he is currently working to get more of his party behind it. However, the move puts Democrats in something of a bind: Supporters argue that Americans need tax relief now more than ever, but opponents say it would mostly help wealthy people and, further, reduce revenue at a time when the government needs money more than ever. The Biden administration has been largely agnostic on the issue; while it did not include the measure in its original plan, it hasn’t come out against it either.

Regardless of whether the final bill will include repeal, Democrats intend to move quickly. While they are open to negotiations with the GOP and would like the bill to be bipartisan—they’re preparing to move ahead on their own if the talks break down as they have before.

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