House increases the SEL tax deduction limit from $ 10,000 to $ 80,000 in Build Back Better; Senate plans changes so millionaires don’t get tax cuts


In 2017, President Donald Trump and then Speaker of the House Paul Ryan eliminated unlimited deductions that residents of high property and income tax states like New York and California can take on their federal taxes, capping state and local tax deduction to $ 10,000. This deduction, also known as SALT, was passed in part because Ryan and House Republicans no longer wanted to subsidize what they saw as overspending and over-taxation by high-tax states like NY and California and then President Trump did nothing to stop them.

The $ 10,000 SALT tax deduction cap really hit Westchester, whose owners pay the highest property taxes in the country. For example, a Scarsdale homeowner who pays $ 60,000 a year in property taxes (based on a value of $ 3 million) and pays $ 20,000 in income taxes in New York State ( based on $ 400,000 per year in income), could only deduct $ 10,000 of $ 80,000 in state and local taxes, losing a $ 70,000 tax deduction each year on their federal income taxes .

But another argument has now settled in the progressive wing of the Democratic Party. Does this family that earns $ 400,000 a year and lives in a $ 3 million home in Scarsdale deserve tax relief from the SALT tax deduction cap?

President Joe Biden and US Senator Bernie Sanders, chairman of the Senate Budget Committee (yes, Bernie is the chairman of the Budget Committee) both want to give tax relief to families earning less than $ 400,000 a year. So Sanders and New Jersey Senator Robert Menendez (of another high-tax state SALT) have proposed offering families with incomes below $ 400,000 a SALT tax break. They will not be subject to the SALT tax cap deduction and will be able to deduct all of their property taxes and state income taxes.

But what Sanders wants to do in the Senate is not what was passed in the House of Representatives as part of the Build Back Better bill that we recently passed. Under the House plan, the SALT cap would increase from $ 10,000 to $ 80,000 until 2030.

So that same Scarsdale owner who has $ 80,000 in property and state income taxes would get his SALT deduction back. Westchester County Executive George Latimer supports the SALT changes that have been passed by the House. “The biggest tax increase felt by Westchester County taxpayers was the – intentionally targeted – cap on the state and local tax deduction at $ 10,000 included in the Trump / GOP tax plan passed in 2017. owners middle class, the House of Representatives raised the ceiling as part of the Build Back Better social infrastructure program.

“Westchester middle class homeowners chose to live here because of the exceptional services provided by local governments, schools and municipal entities. Public transit, educational opportunities, public safety officers, and investments like our award-winning park system all contribute to the high quality of life in our region. Thanks to Westchester Reps Sean Patrick Maloney, Mondaire Jones and Jamaal Bowman for their efforts to keep this provision in the BBB and also thanks to Majority Leader Chuck Schumer and Senator Kirsten Gillibrand for continuing their fight in the Senate on behalf of of our community, ”said Latimer.

Long Island owners, Putnam, Rockland and Dutchess County owners, and Connecticut owners were also affected by the SALT changes four years ago.

A “middle class” homeowner in Westchester who pays $ 15,000 a year in property taxes and $ 5,000 in state income taxes could now deduct an additional $ 10,000 in taxes on his federal return.

Senators Sanders and Menendez’s alternative would exempt people below a certain income threshold from the $ 10,000 cap. Sanders suggested setting the threshold at $ 400,000, in line with President Biden’s pledge not to increase taxes on households with incomes below that level; Senator Menendez would set the threshold a little higher. Either way, this approach would exempt the vast majority of households – including all middle-income households – from the cap. And that would avoid the biggest flaw in the House’s proposal, which would offer totally unnecessary tax cuts of up to $ 25,900 to many of the country’s wealthiest people, as explained below.

Here is a little background. The SALT cap of the 2017 tax law targeted higher income households that pay substantial national and local taxes; these households disproportionately live in states that impose higher taxes to support stronger public services, where political power tends to be held by Democrats. In these states, the ceiling is generally affected around 9 out of 10 households with incomes in the top 95e to 99e percentiles. But these households still benefited from the largest net tax reduction of the 2017 tax law, measured as a percentage of their income, because other tax cuts in the 2017 law far outweighed the tax increase imposed by the SALT cap, even in the most affected by the ceiling.

There are several reasons why these households benefited from significant tax cuts from the 2017 tax law despite the SALT cap, but two stand out. First, the law lowered income tax rates in many of the seven tax brackets, and all of those rate cuts benefit higher income households. Second, the law drastically reduced the AMT so as to make the AMT much less likely to affect taxpayers in the 95e to 99e percentiles. In New Jersey, for example, where this group has incomes ranging from around $ 337,000 to $ 1.1 million, they have benefited from tax cuts averaging 3.5% of law enforcement revenues. 2017, according to the Institute on Taxation and Economic Policy. The richest 1% of households have also benefited from significant tax cuts from the 2017 law. None of these high-income households need another tax cut.

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