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?
by Countable | 5.14.20
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.
— Eric Revell
(Photo Credit: iStock.com / Velishchuk)
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