Advisors urge Congress to weigh debt reduction against SALT deduction
Mark Schoeff Jr. | InvestmentNews | August 15th, 2023
Clients have varying reactions to congressional efforts to remove the limit on deductions for state and local taxes that has been in place for several years.
The dichotomy of views is a window into the political challenges facing legislation that would remove the $10,000 SALT cap, which was implemented as part of the 2017 Tax Cut and Jobs Act to make up for the tax revenue lost by the bill’s long roster of tax reductions.
Ever since the bill was enacted, lawmakers from states with high taxes have been pushing to eliminate the cap. A bipartisan group of co-sponsors introduced a bill earlier this year that would restore the full SALT deduction.
Proponents lifting the cap say it would provide a much-needed tax cut for residents of high-tax states. Opponents — and a recent study by the National Taxpayers Union Foundation — say the SALT deduction mostly benefits the wealthy and that the cap should remain in place.
Although Democrats from blue states have been leading the charge to lift the cap, a number of Republicans also support the move. The Wall Street Journal recently reported some GOP resistance to a House tax-reform bill until it includes a provision to eliminate the SALT cap.
Advisors say they hope Congress considers the burgeoning federal deficit as they wrestle with policy related to SALT deductions.
A similar admonition to keep an eye on the federal budget comes from Sam Huszczo, founder of SGH Wealth Management in Southfield, Michigan.
“This is a moment where we need to talk about raising taxes in the next few years rather than creating more tax breaks,” Huszczo said. “We need to come up with more revenue if the country is going to handle the debt service it has gotten into.”
Huszczo said the issues boils down to red states versus blue states.
“This is just a state-to-state battle,” he said. “If New York and California win, the rest of us don’t. This is more a savvy political move than something that will help out a broad base of Americans.”
More than 40 states have provided a workaround on the SALT deduction, according to an analysis by the American Institute of Certified Public Accountants. In those states, owners of small businesses known as pass-through entities can deduct state and local taxes through their business taxes.