Legislation Announced to Repeal SALT Deduction Cap
February 11, 2019
U.S. Senator Bob Menendez (D-N.J.) and Congressman Bill Pascrell, Jr. (D-N.J.-09), senior members of the tax-writing Senate Finance and House Ways and Means Committees, unveiled a bipartisan bill to repeal the federal cap on state and local tax (SALT) deductions imposed by the Tax Cuts and Jobs Act (TCJA). With the beginning of tax-filing season underway, many taxpayers — especially in higher-cost states like New Jersey — are just now realizing that they owe significantly more on their taxes as a result of the SALT cap.
The Stop Attacking Local Taxpayers (SALT) Act of 2019 fully restores the SALT deduction, which has been part of the tax code since the federal income tax was created in 1913. It also restores the top individual income tax rate at 39.6 percent, the rate at which upper income was taxed prior to passage of the TCJA. This is the first tax-filing season under the new law, which went into effect for the 2018 tax year.
The SALT deduction allows taxpayers to write off taxes paid at the state and local level from their federal income tax bill so they won’t be subject to being taxed twice on the same dollar. In addition to helping families avoid double taxation, the SALT deduction supports the ability of communities, cities and states to raise their own revenues and fund critical investments in public education, infrastructure, social services and public safety.
In 2017, about 30 percent of taxpayers claimed the deduction, and more than 80 percent of those filers earned under $200,000 — middle class in high cost-of-living states. In New Jersey, 1.8 million or 40 percent of taxpayers deducted their local property and state income taxes in 2016, the last year the data is available, averaging $18,000 per deduction.
According to a recent survey by the New Jersey Society of CPAs of more than 300 CPAs in the state, more than 63 percent said their individual and family clients earning less than $200,000 will see their federal tax bill rise as a result of the SALT cap. Nearly 70 percent said the SALT cap would definitely or somewhat influence their advice to clients on whether to leave New Jersey. One CPA said, “I had a client who earns $60,000 and she lost $2,500 of refund compared to 2017. Another said, “It seems that Trump did not understand or fully appreciate the affect this would have on middle class taxpayers in high tax states like new Jersey.”
Sen. Menendez and Rep. Pascrell announced the legislation at RotenbergMeril, a Saddle Brook, N.J. accounting firm.
“The SALT limitation affects the middle class, as well as wealthier taxpayers. It’s unfair to New Jerseyans to bear a larger tax burden than most — and that’s exactly the effect of the cap,” said Ann Callari, CPA, a tax partner at RotenbergMeril. “The SALT limitation just adds to our taxpayers’ burden.”
The Menendez-Pascrell SALT Act is cosponsored in the Senate by Cory Booker (D-N.J.), Minority Leader Chuck Schumer (D-N.Y.), Kirsten Gillibrand (D-N.Y.), Chris Van Hollen (D-Md.), Tammy Duckworth (D-Ill.) and Ben Cardin (D-Md.). In the House, the bill is cosponsored by Chris Smith (R-N.J.-04), Frank Pallone, Jr. (D-N.J.-06), Bonnie Watson Coleman (D-N.J.12), Donald Norcross (D-N.J.-01), Andy Kim (D-N.J.03), Tom Malinowksi (D-N.J.-07), Donald Payne, Jr. (D-N.J.-10), Eliot Engel (D-N.Y.), Brian Higgins (D-N.Y.), Tom Suozzi (D-N.Y.), Kathleen Rice (D-N.Y.), John Larson (D-Conn.), Rosa DeLauro (D-Conn.), Danny Davis (D-Ill.), Harley Rouda (D-Calif.), Grace Napolitano (D-Calif.), John Garamendi (D-Calif.), Eleanor Holmes Norton (D-D.C.) and Dutch Ruppersberger (D-Md.).