A new bill put forward by Republican senators would extend the contentious $10,000 state and local tax cap deduction for three years. They say their plan to alter tax laws three years from now will ease pressures from inflation and rising gas prices on middle class Americans.
Under current law, a taxpayer may deduct up to $10,000 of any state and local taxes paid. The current SALT cap is scheduled to expire after 2025, "which would allow for an unlimited SALT deduction the benefit of which would primarily accrue to wealthy taxpayers,” a summary of the bill’s provisions said.
Sens. Chuck Grassley, R-Iowa, John Barrasso, R-Wyo., Steve Daines, R-Mont., and James Lankford, R-Okla. introduced the Middle-Class Savings and Investment Act on Tuesday in a partisan response to record high gas prices and 40-year-high inflation.
“The reckless spending, backwards energy policy and overall economic mismanagement of this administration has led to 40-year high inflation," Grassley said. "Unlike other plans, like gas tax rebates or increased taxes on businesses, our legislation will not further fan the fires of inflation.”
The bill comes as the latest move by congressional leaders to make adjustments to the SALT cap that was introduced in 2017 as part of President Trump’s Tax Cuts and Jobs Act. There is currently no companion bill in the House.
The Supreme Court in April
President Biden’s all but dead Build Back Better bill proposed to change the SALT cap deduction to $80,000, a move that would reduce the federal income tax liability by $55.9 billion in 2021 but was labeled by Grassley as a “blue-state billionaire bailout,” and something that would “bring down their Build Back Better.”
High-income taxpayers in high-tax states would benefit the most from the cap being raised to $80,000.
They would benefit less than they would under full cap repeal, a recent report by the State and Local Government Finance Project at the University of Albany in collaboration with the American Enterprise Institute said of the Build Back Better provision.
Still others introduced their own versions over the past several months. Sen. Bernie Sanders, I-Vt. and Sen. Bob Menendez, D-N.J., in November supported their own SALT cap overhaul that would keep the $10,000 cap in place for families with at least $400,000 in income.
Reps. Tom Malinowski, D-N.J. and Katie Porter, D.-Calif.,
Sen. Chuck Schumer, D-N.Y., outlined his proposal to eliminate the cap for five years and reinstate the $10,000 cap in 2026.
The Grassley proposal would also expand the current 0% tax bracket for capital gains and dividends to put it in line with the top current 22% tax bracket, index the Net Investment Tax to inflation, which for 2022 would increase the NIT threshold for married couples to $400,000 from $250,000, in addition to excluding the first $300 ($600 if married) of interest income from tax and enhance and expand Savers Credit by increasing the maximum credit amount.
“Sen. Grassley’s Middle Class Savings and Investment Act would allow millions of American workers and families to invest more confidently for any number of major and long-term life expenses, and would reduce the taxes Americans owe on the earnings from those investments,” said Andrew Lautz, director of federal policy, National Taxpayers Union. “The legislation is also fiscally responsible, paying for pro-growth tax cuts by extending the prudent $10,000 cap on the state and local tax (SALT) deduction for three years,” he added.
