Ways and Means declines SALT cap lift

The House Ways and Means Committee is taking a pass on lifting the cap on the deduction on state and local taxes, declining to include the measure in legislation advanced by the committee Tuesday.

Modifying the SALT deduction cap remains a key policy goal for municipal market issuers, but it is not included in a trio of Republican-led pieces of legislation collectively known as the American Families and Jobs Act. The proposed legislation is being touted as "rocket fuel" for the business community. 

"The Ways and Means Committee is putting forward the Small Business Jobs Act with solutions that cut IRS red tape, expand jobs and investment and support rural communities," said Committee Chair Rep. Jason Smith, R-Mo. "We're reducing burdensome requirements for American workers and small businesses." 

The package also includes the Tax Cuts for Working Families Act , and the Build It in America Act . Tax Cuts for Working Families would raise the standard deduction for taxpayers making less than $400,000 in adjusted gross income for tax years 2024 and 2025. Build It in America would roll back clean energy tax credits enacted by the Inflation Reduction Act.  

The proposed legislation was marked up during a contentious hearing on Tuesday that saw Democrats referring to the package as a "tax scam." It was passed out of the committee on party line votes.   

The lack of any bipartisanship in the committee votes suggests that this legislation is more likely to be the starting point for Republicans in later negotiations than it is to be the eventual law. The Democrats are in control of the Senate, and so no measure can hope to become law without at least some support from the other side of the aisle.

The SALT deduction was capped at $10,000 as part of the 2017 Tax Cuts and Jobs Act. Critics of the policy claim the law is unfair for residents of high tax states while muni issuers say the cap infringes on their sovereign ability to levy future taxes. Efforts to lift the deduction has crossed party lines and sparked ongoing debates about who is bearing the burden. Rep. Adrian Smith, R-Neb. defended the TCJA and the cap. 

"We've been told over and over again that those tax breaks go to the wealthy," he said. "Our approach was very thoughtful. The average SALT deduction across the country in 2017 was roughly $5,000. We doubled it to $10,000 and put a cap on it. That's good, broad-based tax policy." Many states with high tax rates have enacted workarounds that provide relief to business owners via tax deductions or credits. 

Eliminating the SALT cap deduction remains a talking point for the Government Finance Officers Association and the National Association of Counties.

"Broadly, counties support efforts to restore the deductibility of all state and local taxes," said Mark Ritacco, chief government affairs officer, NACo. "Repealing the SALT cap would reverse the current double standard where businesses and landlords may deduct their state and local taxes, but individuals who achieve the American dream of homeownership are capped and held to a different standard." 

The cap is due to expire on its own on Dec. 31, 2025, unless Congress votes to extend it. Although lifting the cap didn't make the cut, advocates remain hopeful.

"While we don't anticipate this ultimately being the legislation that gets passed on this issue, we do think it represents continued momentum and gives us confidence this remains a key agenda item in Congress," said Ritacco. 

Debates also raged during the markup session about changes to the reporting limits for IRS 1099 forms, expanding the Opportunity Zone program to rural areas, making research and development costs immediately deductible, extending interest deductibility, and extending one hundred percent expensing.   

The Democrats contend that the Republican-proposed legislation would boost budget deficits just days after the debt ceiling imbroglio while cutting taxes for the rich.

"Republicans have chosen to devote their efforts to further tilting the tax code to the wealthy and the strongest amongst us," said Rep. Richard Neal, D-Mass. "There is no proof that these tax cuts will go anywhere but into the pockets of venture capitalists and  some business owners."