House Democrats advanced a bill Wednesday to temporarily repeal the limitation on state and local tax deductions imposed by the 2017 GOP tax overhaul, legislation that would primarily benefit wealthy taxpayers in blue states.
The proposal is certain not to pass in the Senate but demonstrates congressional Democrats’ priorities in responding to the Trump tax cuts.
The legislation gained approval in a party-line vote in the House Ways & Means Committee, 24-17.
The bill would strike down the part of the tax law that sets a $10,000 cap on federal tax deductions for state and local taxes paid, a provision that particularly affects high-tax states like New York, New Jersey, and California.
“It was a real punch in the gut to a lot of different communities,” said Democrat Tom Suozzi of New York, who sponsored the bill with fellow Democrats Mike Thompson of California and Bill Pascrell of New Jersey. “It’s really about fairness,” said Suozzi.
Wednesday’s vote was a rare instance of Democrats effectively fighting for tax cuts that would accrue to the rich, with Republicans in opposition.
The Joint Committee on Taxation estimated in a report released in June that the repeal would cut taxes for 13.1 million taxpayers in 2019, 99% of whom have incomes of at least $100,000. Furthermore, over 50% of the benefit would go to those with incomes of at least $1 million.
The left-leaning Center on Budget and Policy Priorities, meanwhile, estimated that the top 1% of households would receive 57% of the benefit of repeal, and the top 5% of households would receive over 80% of the benefit, while the bottom 80% of households would receive just 4%.
The Tax Foundation, a right-of-center think tank, noted in a June 2019 analysis of the deduction, commonly referred to as the “SALT” deduction, that repealing the $10,000 cap would be a “regressive tax policy change” that would overwhelmingly benefit the top fifth of taxpayers.
Many Democrats say that the cap on SALT deductions unfairly affects taxpayers in their states, where incomes and housing prices are higher. They argue that the Republican bill targeted Democratic voters in order to pay for the tax cuts.
High-tax states like Connecticut, New York, and New Jersey responded to the 2017 tax overhaul by passing laws to create charitable funds to which taxpayers could give state tax payments, thereby laundering state taxes into federally tax-deductible charitable contributions, bypassing the SALT deduction cap.
A federal judge in New York ruled in September that the 2017 federal tax overhaul’s cap on state and local deductions was not an “unconstitutional assault” on the high-state taxes, as Democrats had alleged.
