WASHINGTON – House Ways and Means Committee Republicans on Thursday rejected an attempt by Democrats to repeal the $10,000 cap on the federal tax deduction for state and local taxes and offset the cost with an increase in the corporate tax rate.
The Protecting Family and Small Business Tax Cuts Act of 2018 ( H.R. 6760) passed the committee along a party line vote after Republicans rejected half a dozen amendments from the Democrats. There was a spirited debate over the cap on the SALT deduction.
House Republicans want to make the $10,000 cap permanent along with the lower income tax rates for individuals that are due to expire at the end of 2025.
Rep. Bill Pascrell, D-N.J., who offered the amendment, said the average SALT deduction in his congressional district is “over $18,000, and in some counties more than $24,000.”
Committee Chairman Kevin Brady, R-Texas, said the proposed legislation “is critical to middle- class families and small business that Washington doesn’t steal back their hard-earned money" and that Thursday's vote "says Congress will make these tax cuts for middle-class families permanent.”
Democrats, however, pointed out that House Republicans are ultimately expected to fail in their effort enact Tax Reform 2.0 because it won’t be taken up in the Senate before the end of the year.
“This bill will never become law,” said Rep. Joe Crowley, D-N.Y. “We’re here for theater."
"It does give us an opportunity to talk about the law that you did pass and one that had some very damaging elements to our struggling working men and women in our country,” he added.
Crowley said the tax law changes are pushing annual deficits toward $1 trillion and helping to bankrupt Social Security.
Republicans plan a vote in the full House on Tax Reform 2.0 prior to the November election and are using the tax legislation as a campaign issue.
Democrats said they are hopeful of regaining majority control of the House in November, which would enable them in the next Congress to repeal the parts of the Tax Cuts and Jobs Act enacted last December that they think are egregious.
“Where the idea came to cut the top individual rate for millionaires in America is just beyond me,” Rep. Richard Neal, the ranking Democrat on the committee, said in reference to last year's tax legislation.
Rep. Ron Kind, D-Wis., agreed with Neal that the tax bill that passed at the end of 2017 “was directed in all the wrong places,” instead of focusing only on the simplification of the tax code and the tax relief for the middle class that Democrats supported.
Republicans, however, highlighted the importance of the middle-class tax relief that was enacted.
Rep. Tom Reed, R-N.Y., said “one of the erroneous impressions that is going across the country” is that people will pay a dollar-for-dollar increase in federal taxes for the amounts of the SALT deduction they previously claimed above $10,000.
“What we are talking about here, ladies and gentlemen, is a tax deduction," not an increase in taxes, Reed said.
Reed said the average total of itemized deductions, including charitable contributions, has been $16,230 in his congressional district and families don’t realize the standard deduction has been increased to $24,000 for married couples filing jointly.
Repeal of the cap on the SALT deduction is supported by many state and local government groups, including the Government Finance Officers Association, the National League of Cities and the National Governors Association.
Those groups also support reinstatement of advance refundings, which were terminated at the end of 2017.
But Democrats who support reinstatement of advance refundings did not offer an amendment on that advance refundings because it was not one of the six issues they chose to focus on during the markup.
Rep. Terri Sewell, D-Ala., pointed out during a brief interview with The Bond Buyer that she unsuccessfully attempted to prevent elimination of advance refundings last year during the markup of the Tax Cuts and Jobs Act.
The failed amendments sponsored by Democrats included a proposal to delay the reduced tax rate for offshore corporate profits until the nonpartisan congressional Joint Committee on Taxation can verify the average household income has increased by $4,000 as promised by President Trump and congressional Republicans.
Other amendments from Democrats that failed along party-line votes would have made permanent tax relief for disaster victims and expanded the earned income tax credit, as well as the adoption tax credit and the dependent care tax credit. Another would have permanently restored the deduction for medical expenses in excess of 7.5% of adjusted gross income.
Emily Brock, director of the federal liaison office of GFOA, said Thursday her organization and mayors are continuing to lobby for repeal of the SALT deduction cap and the reinstatement of advance refundings.
