| 5.14.20

Democrats' 'Heroes Act' Coronavirus Relief Bill Increases Deductions for Wealthier Residents of High-Tax States

Do you support a two year elimination of the $10K cap on the state & local tax deduction?

This content leverages data from USAFacts, a non-profit that visualizes governmental data. You can learn more on its website, Facebook, and Twitter.

What’s the story?

House Democrats are set to hold a vote on a roughly $3 trillion coronavirus (COVID-19) relief package known as the Heroes Act (H.R. 6800) on Friday.
One of the more controversial provisions in the Democrats’ package is an elimination of the $10,000 cap on the state and local tax (SALT) deduction for the 2020 & 2021 tax years.
Critics of the proposal argue that even a temporary restoration of the full SALT deduction disproportionately benefits higher-income earners in states that have relatively high tax burdens.

What is the SALT deduction?

The state and local tax (SALT) deduction allows taxpayers who itemize their returns to deduct income, sales, and property taxes imposed by their state & local taxes from their federal tax liability.
Because the SALT deduction can only be claimed by taxpayers who itemize their tax return as opposed to claiming the standard deduction, it generally benefits taxpayers with higher incomes.
According to 2015 data from USAFacts, taxpayers making less than $61,000 only saved $144 on average thanks to the SALT deduction; whereas those earning over $113,000 saved $1,569 on average & the top 1% of taxpayers saved an average of $21,723.
In 2017, Republicans’ Tax Cuts & Jobs Act doubled the standard deduction to provide more tax relief to taxpayers who don’t itemize and capped the SALT deduction for itemizers at a maximum of $10,000 per year effective in 2018.
This chart from USAFacts shows how the amount of SALT deduction claimed decreased after the Tax Cuts & Jobs Act took effect, falling from a high of $104.1 billion in 2017 to $37.6 billion in 2018 & $10.4 billion in 2019:

This chart from USAFacts shows the difference between SALT deductions claimed due to income & sales taxes (blue) and due to property taxes (pink); which fell from $70.4 billion in 2017 to $4.4 billion in 2019, and from $33.7 billion in 2017 to $6 billion in 2019, respectively:

What’s the outlook for the SALT deduction cap?

Democrats’ Heroes Act isn’t going to become law, with President Donald Trump having already issued a veto threat, so it is functionally a Democratic opening bid in negotiations over a future bipartisan “phase 4” coronavirus relief package.
Democrats have discussed several different ways to lift the SALT deduction cap during the 116th Congress. House Speaker Nancy Pelosi (D-CA) initially considered a retroactive lifting of the SALT deduction cap for 2018 & 2019 in a “phase 4” package, which was estimated to cost $77 billion for 2019 alone ($40 billion for Americans earning over $1 million per year).
Given that Senate Majority Leader Mitch McConnell (R-KY) blasted Democrats’ inclusion of a two year elimination of the SALT deduction cap in the coronavirus relief package as a “giveaway to blue state millionaires,” Republicans are unlikely to agree to including such a provision in a future “phase 4” bill.