Yellen Pledges to Work With Congress on Ways to Ease SALT Cap

U.S. Treasury Secretary Janet Yellen pledged to work with Congress to ease the $10,000 cap on state and local tax deductions that’s been a key area of focus for New York and New Jersey lawmakers in recent years.

Yellen noted that the limitation on state and local tax, or SALT, write-offs in President Donald Trump’s 2017 tax law caused “disparate treatment” across taxpayers. Representatives from high-tax states have said that the restrictions on the tax break have caused their constituents to pay more in taxes.

“There are lots of options that have been presented, and I would work with you to try to ensure the inequities that this caused are remedied in a fair and responsible way,” Yellen said in response to a question from Representative Josh Gottheimer, a New Jersey Democrat, during a House Financial Services Committee hearing on Tuesday.

Yellen stopped short of committing to any particular plan. She said that there are bipartisan proposals to repeal the $10,000 cap on the tax break entirely, making the deduction unlimited. Another option is increasing the cap, she said. President Joe Biden’s proposal to limit itemized deductions for high-income taxpayers at 28% of their adjusted gross income is another way to expand the SALT deduction.

“We need to study just what impact it’s had and I look forward to working with you to find a fair way to address it,” Yellen said.

Addressing the SALT cap is a controversial topic among some factions within the Democratic party. Representatives from high-tax areas say that middle-income residents in their districts are paying much larger bills to the IRS since the change went into effect in 2018.

However, repealing the cap would also supply a big tax break to high-income households. Suspending the limitation for one year would cost the government about $88.7 billion, with more than half of the benefits flowing to those earning more $1 million a year, according to the non-partisan Joint Committee on Taxation.

House Democrats have repeatedly tried to repeal the SALT cap, but efforts in prior years failed to gain traction in a GOP-led Senate.

The measure wasn’t included in the $1.9 trillion rescue bill enacted earlier this month, but lawmakers are looking for ways to pass SALT legislation later this year. Senate Majority Leader Chuck Schumer, a New York Democrat, also supports the effort. He introduced legislation to repeal the SALT cap earlier this year.

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