House of Representatives considers reducing SALT’s “marriage penalty”

Lawmakers are considering reducing the “marriage penalty,” known as SALT, which affects federal deduction limits for state and local taxes. Although the bill does not have widespread support, it could help shape future tax discussions, experts say.

Enacted by the 2017 Republican tax reform, the federal deduction for SALT is currently capped at $10,000, making it difficult for some lawmakers in high-tax states like New York, New Jersey, and California to , this has become an important issue. Without changes from Congress, the $10,000 limit will be eliminated after 2025, and there will be no cap on deductions.

The House bill, known as the SALT Marriage Penalty Elimination Act, would double the limit to $20,000 for couples filing together with adjusted gross incomes of less than $500,000. This change is temporary and retroactive, starting after December 31, 2022, and ending January 1, 2024.

Starting in 2018, filers who itemize their deductions will no longer be able to claim more than $10,000 in SALT, which includes property taxes and state income taxes, and some lawmakers have suggested that each taxpayer must They argue that this imposes penalties on married couples filing joint returns, as they can claim up to $10,000.

Lawmakers are scheduled to take a procedural vote on the bill Wednesday afternoon for further consideration in the House of Representatives.

“There’s not much agreement on what the design of the SALT cap will look like after 2025,” said Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation. “This helps establish the beginning of a conversation.”

The SALT cap “is going to be one of the biggest sticking points” as debate continues over the expiration of provisions of the Tax Cuts and Jobs Act, he said.

While supporters of SALT reform tout its benefits to middle-class households, a new Tax Policy Center analysis shows that the current bill would primarily benefit wealthy households.

If enacted, more than 90% of the benefits from the temporary change would go to households with incomes between $200,000 and $1 million, according to the study.

“Wealthy people have already done pretty well with the Tax Cuts and Jobs Act, and this time we’re just giving them a little bit more leeway,” said John Buhl, senior communications manager at the Urban Institute. .

A recent Tax Foundation analysis found similar results, noting that taxpayers who itemize their deductions and have SALT expenses of more than $10,000 are generally high-income earners.

An analysis by the Tax Foundation found the proposal would boost after-tax incomes by 0.3% for the top 20% of taxpayers, while the bottom 40% of households would see “little change.”