A bigger tax deduction for Californians making up to $550K? The Senate’s thinking about it
Democratic senators are seriously considering a plan to lift the cap on state and local tax deductions entirely for people who earn between $400,000 and $550,000.
Some sort of adjustment to the SALT cap on federal income tax, which was set at $10,000 by the 2017 tax cut law, is probably coming.
The House is expected to vote as soon as this week on a plan to raise the cap to $80,000 through 2030, part of President Joe Biden’s $1.75 trillion social spending plan.
But the House SALT plan is not popular in the Senate, where lawmakers — and independent analysts — see such an expanded cap as a big break for the wealthy.
So Sens. Bob Menendez, D-New Jersey, and Bernie Sanders, Ind.-Vermont, are eyeing lifting the cap entirely, but only for those falling below a certain income limit, possibly between $400,000 and $550,000.
President Joe Biden has vowed he would not increase taxes on anyone making less than $400,000 annually..
The Senate plan would have a particularly dramatic effect on California’s middle and upper middle income taxpayers, according to the Institute on Taxation and Economic Policy, a Washington research firm.
Under the Senate proposal, ITEP estimates that a little more than a quarter of Californians earning between $83,200 and $151,100 would gain. Those taxpayers in this group who benefit could get a $1,460 tax break.
Almost 70% of those earning $151,100 to $358,700 could benefit, and those who do could see a tax $3,750 savings.
There would be no break, or a minimal one, for lower income taxpayers. ITEP estimates the poorest 40% of Californians, or those earning less than $51,700, would see no help. Of the middle 20%, people making $51,700 to $83,200, 4% would benefit from the provision.
SALT cap controversy
Changing the cap at all remains controversial. The nonpartisan Committee for a Responsible Budget called the House version a “costly mistake.”
“That households so high on the income spectrum can expect a net tax cut from the Build Back Better Act is entirely due to the increase in the SALT deduction cap from $10,000 to $80,000,” the analysis said.
The nonpartisan Tax Policy Center agreed. “The House Democrats’ latest plan to adjust the cap on the state and local tax deduction would provide little or no benefit for low and middle-income households but generate a substantial tax windfall for those with much higher incomes,” it found.
Helping the ‘richest 1%’
Another reason many Democrats dislike the House plan: They say it would give Republicans fresh political ammunition.
“They’re complaining that we (Republicans) want to help the richest 1% and that’s what they’re doing with SALT,” said Sen. Charles Grassley, R-Iowa, who played a major role in shaping the 2017 tax law.
Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, also had reservations about the Senate idea.
“It’s still costly, still regressive, still a waste of resources, but not nearly as bad as the House version,” he said.
Sanders was adamant that the richest taxpayers should not get a SALT break. “It would be absurd and hypocritical to provide the richest people in this country with massive tax breaks,” he said.
“We are convinced any SALT relief should be targeted to the families who need it most,” Menendez said.
The Senate is expected to debate the bill over the next few weeks.
.jpg)