SALT-Cap Repeal Unlikely to Be Added to Covid-19 Relief Bill

Hopes among millions of upper-income and middle-class taxpayers for a repeal of the Trump administration’s limits on their federal deductions will likely be on hold for now, as an effort to include the measure in the Covid-19 aid package is poised to fail.

The House Ways and Means Committee is slated to clear the tax portions of President Joe Biden’s stimulus legislation on Friday. Calls by some New Jersey Democrats to repeal the $10,000 cap on state and local tax, or SALT, write-offs, have gone unheeded in the legislation so far.

The panel’s chair, Richard Neal, a Massachusetts Democrat, didn’t include the item in the draft legislation released by the committee earlier this week. Bill Pascrell, a New Jersey Democrat on the committee who’s among the lawmakers pushing for a SALT-cap repeal, isn’t going to propose an amendment with the measure, according to his spokesman Mark Greenbaum.

While Senate Majority Leader Chuck Schumer has also called for a repeal, his chamber’s Covid-19 relief bill is also unlikely to include that, according to a Senate Democratic aide familiar with the plans.

Treasury Secretary Janet Yellen has said she wants to study the effects of the SALT cap before making policy recommendations, and Biden didn’t include it in his rescue proposal.

High Hurdle

The push faced a seemingly insurmountable hurdle. Repealing the SALT cap is a costly proposition, and Democrats have a firm $1.9 trillion limit for the pandemic relief bill’s total cost. To allow unlimited deductions just in 2021 would cost $88.7 billion, according to the Joint Committee on Taxation. Permanently repealing the limitation, as Pascrell, Schumer and Representative Josh Gottheimer, a New Jersey Democrat, have proposed would cost many multiples of that.

Republicans put the limit in President Donald Trump’s 2017 tax-cut legislation to help pay for a portion of the corporate and income-tax reductions. It particularly affected residents of high-tax states.

The House Ways and Means Committee is scheduled to wrap up its portion of the pandemic aid legislation -- which includes stimulus checks, tax credits for low-income households and expanded unemployment benefits -- on Friday.

The full House is expected to consider the overall bill during the week of Feb. 22. Amendments and changes to the bill can be added as it moves through the process.

The push to expand SALT write-offs put many Democrats in an uncomfortable spot as they debate how best to target the $1.9 trillion in relief. Lawmakers are barring households earning over $200,000 from receiving stimulus checks, but the SALT deduction would advantage many people earning much more than that. About 52% of the benefit from repealing the cap flows to households earning at least $1 million a year, according to the the non-partisan Joint Committee on Taxation.

The Biden administration plans to look at a revamp of the 2017 tax legislation later this year.

©2021 Bloomberg L.P.

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