Some Californians could get big tax savings if this change goes through. It’s possible
Middle class and wealthier Californians save a lot of money on their federal income tax if Congress gets rid of the $10,000 cap on state and local tax deductions — and there’s a lot of support for doing that soon.
“We’re working towards that goal” of repealing the cap, said Senate Majority Leader Chuck Schumer, D- New York..
Repeal is an “important priority,” said Henry Connelly, a spokesman for House Speaker Nancy Pelosi.
Congress this week plans to begin taking steps to consider Democrats’ $3.5 trillion tax and spending plan. The package, which includes higher income tax rates on the wealthy and businesses as well as expanded Medicare, child care and health care programs, is likely to be rewritten often and take months before a final vote.
But a group of Democrats from higher-income states has made it clear: No state and local tax deduction change, no support.
Since Republicans are unanimously opposed to the package so far, and Democrats can only afford to lose three votes in the House and none in the Senate, the SALT cap will be in play.
“No SALT, no deal,” said Rep. Thomas Suozzi, D-New York, one of the leaders of the repeal coalition.
Local California lawmakers are all for repeal, but won’t go as far as Suozzi.
Rep. John Garamendi, D-Walnut Grove, wants the cap ended but won’t withhold his support for the budget plan if it’s not included.
He sees the big budget bill as “a once-in-a-generation opportunity to grow the middle class, address the climate crisis, improve health care, and rebuild our infrastructure,” said spokesman Eric Olsen.
Rep. Josh Harder, D-Turlock, said repealing the SALT cap puts “real money back in the pockets of Central Valley families,” but will read the full budget bill before drawing any red lines.
Rep. Doris Matsui, D-Sacramento, also wants repeal, saying it “disproportionately targeted states like California by double taxing our residents. Repealing this arbitrary cap is critical to relieving the tax burden on California’s middle class and putting money back in the pockets of Sacramento’s families.”
How much could Californians save?
The cap was created by the 2017 tax cut law, an effort championed by Republicans.
Its impact has been greatest in states that are considered Democratic strongholds, such as California, New York and New Jersey.
Of the 20 congressional districts hit the hardest, 19 were in Democratic states, a study by the nonpartisan Tax Policy Center found. The only Republican district listed was in eastern Long Island.
An analysis recently by the nonpartisan Tax Foundation found that most California counties would benefit from loosening the cap. About 17.7% of California tax filers itemized deductions in 2018.
Benefiting the most could be wealthier taxpayers. The Tax Policy center found about 45% of households in the top 20% of income earners, who earn $153,000 or more, would get a tax cut under a SALT repeal. Nine of 10 in the top 1%, with incomes of $754,800 or more, would also get the break.
Middle-income households would pay about $360 less in taxes, while the top 1% would save about $34,000.
The break would be particularly helpful in San Francisco County. Average state and local taxes reported totaled $57,103 per itemizing taxpayer in 2018, the latest data available.
Also high on the list: San Mateo County, $55,163; Marin County, $49,593 and Santa Clara County, $46,817.
In almost every California county, itemizing taxpayers would benefit. Their average reported state and local tax in 2018:
▪ El Dorado County, $19,344.
▪ Placer County, $19,246.
▪ Fresno County, $16,632.
▪ San Luis Obispo County, $16,536.
▪ Sacramento County, $14,338.
▪ San Joaquin County, 14,153.
▪ Merced County, $11,604.
▪ Stanislaus County, $13,861.
▪ Tulare County, $13,127.
A big tax break?
Sen. Charles Grassley, R-Iowa, a former Senate Finance Committee chairman, said last year the aim was not to target Democratic states.
He did say, though, that one of the goals was to “make sure that the national taxpayers weren’t subsidizing the big spending in a lot of mostly liberal states.”
He didn’t specifically cite any states, but said they were ”big population states where they don’t care a whole lot about what they spend or what they tax the higher-income people.”
Lawmakers from the big states see things very differently. “The SALT deduction cap was a bald-faced Republican scheme to double tax blue communities and not red ones in order to choke off the revenue that high-cost progressive states and cities need to sustain services and meet the needs of their residents,” said Pelosi spokesman Connelly.
“Democrats continue to work on a path forward for this important priority in the reconciliation bill,” he said.
The budget bill at the moment does not contain a SALT repeal. But Rep. Richard Neal, D-Mass., chairman of the tax-writing House Ways and Means Committee, and two other committee members assured supporters last week the issue is very much alive.
“What we consider now is an important step in the process, but not the final step,” they said in a statement. “We are committed to enacting a law that will include meaningful SALT relief that is so essential to our middle-class communities and we are working daily toward that goal.”
The bigger struggle is likely in the Senate, where Democrats are already having trouble holding their caucus together. The concern of Sens. Joe Manchin, D-West Virginia, is the cost, and lifting SALT would add to that cost.
Sen. Dianne Feinstein, D-California, was not optimistic about a SALT repeal. “I don’t think it will (be lifted) but we’ll wait and see,” she said.
Schumer was more upbeat.
“There’s strong sentiment among many people in our caucus, both House and Senate,” he told reporters, “that the SALT cap should be lifted and we’re working towards that goal.”
This story was originally published September 21, 2021 at 5:00 AM.
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