Bill to Modify State Tax Deduction Splits Opinions During House Hearing
WASHINGTON — A congressional committee took a last look at a Democratic proposal to repeal a cap on state and local taxes before a vote expected in the U.S. House this week.
The cap is a $10,000 limit on state and local income tax deductions Republicans inserted into the 2017 tax reform legislation, saying it would prevent taxpayers who itemize from subsidizing higher state taxes.
Republicans also said repealing the state and local tax (SALT) deduction would unfairly benefit the wealthiest taxpayers.
“Fifty-one percent of the benefit would go to people who earn over a million dollars,” said Rep. Tom Rice, a South Carolina Republican, during a hearing Monday of the House Rules Committee.
Proof the 2017 tax reform legislation was worthwhile can be found in the booming stock market and low unemployment rates in the past two years, according to Rice.
Tampering with the tax code by repealing the SALT tax cap could interfere with recent economic gains, he said.
He warned increasing state and local tax deductions would shift more of the burden to pay for public benefits to the federal government.
“The effect of it is that the federal government subsidizes high tax jurisdictions,” Rice said.
The Democratic bill would increase the cap on state and local tax deductions to $20,000 for married couples for 2019 and repeal the cap for 2020 and 2021.
Rep. Tom Cole, an Oklahoma Republican, said the Democratic proposal would be “a big giveaway to very wealthy people.”
Other provisions in the Democratic repeal bill would increase the deduction for educators’ expenses and allow first responders to deduct job-related costs. The top individual tax rate would increase from 37 percent to 39.6 percent for 2020 through 2025.
Democrats who spoke during the House Rules Committee hearing said the $10,000 cap impedes state governments’ ability to provide public services. The biggest complaints come from high tax states like California, New Jersey and New York.
The Democrats expressed concern the highest-earning residents would move to lower tax states if the $10,000 cap is not eliminated.
“For me, it’s about fairness,” said Rep. Brad Schneider, an Illinois Democrat. “That burden is going to fall on working families.”
The current cap “is quite simply double taxation, and it is wrong,” Schneider said.
Raising the cap under the pending bill would generate $2.4 billion in deficit reduction, he said.
“It pays for itself,” Schneider said.
In The News
WASHINGTON — Some temporary tax changes are in effect as a result of President Biden’s ‘American Rescue Plan.’ The Earned Income Tax Credit is a tax benefit aimed at helping low- and moderate-income earners, but ARPA expands both the eligibility and the amount of potential EITC... Read More
Just as corporations and tax practitioners are beginning to adjust to the 2017 Tax Cuts and Jobs Act, the Biden administration’s proposed changes would introduce further complexities into an already complicated system, according to three U.S.-based tax attorneys. Biden’s proposal increases the standard corporate tax rate,... Read More
WASHINGTON - The Internal Revenue Service is poised to give Americans extra time to file their taxes as a result of the pandemic, according to a published report. Instead of the usual April 15 deadline, filers will have until May 17. The development was first reported... Read More
WASHINGTON - Rep. Abigail Spanberger, D-Va., is calling on the Internal Revenue Service to immediately extend the 2020 tax filing deadline an additional three months — to July 15, 2021. Central Virginia taxpayers currently have until Thursday, April 15, 2021 to file their 2020 tax return... Read More
NEW YORK (AP) — Manhattan District Attorney Cyrus R. Vance Jr. fought for a year and a half to get access to former President Donald Trump's tax records.Now, thanks to a U.S. Supreme Court ruling, he will soon have them. But what will that mean for... Read More
WASHINGTON - The U.S. Supreme Court on Monday rejected an effort by former President Donald Trump to shield his income tax records from N.Y. prosecutors. The court’s action is the apparent culmination of a lengthy legal battle that had already reached the high court once before.... Read More