Treasury Secretary Janet Yellen pledged to work with Congress to ease the $10,000 cap on state and local tax deductions that’s been a key area of focus for New York and New Jersey lawmakers in recent years.
Yellen noted that the limitation on state and local tax, or SALT, write-offs in President Trump’s 2017 tax law caused “disparate treatment” across taxpayers. Representatives from high-tax states have said that the restrictions on the tax break have caused their constituents to pay more in taxes.
“There are lots of options that have been presented, and I would work with you to try to ensure the inequities that this caused are remedied in a fair and responsible way,” Yellen said in response to a question from Representative Josh Gottheimer, a New Jersey Democrat, during a House Financial Services Committee hearing on Tuesday.
Yellen stopped short of committing to any particular plan. She said that there are bipartisan proposals to repeal the $10,000 cap on the tax break entirely, making the deduction unlimited. Another option is increasing the cap, she said. President Biden’s proposal to limit itemized deductions for high-income taxpayers at 28% of their adjusted gross income is another way to expand the SALT deduction.
“We need to study just what impact it’s had and I look forward to working with you to find a fair way to address it,” Yellen said.
Addressing the SALT cap is a controversial topic among some factions within the Democratic party. Representatives from high-tax areas say that middle-income residents in their districts are paying much larger bills to the IRS since the change went into effect in 2018.
Some business owners can get hurt by workarounds to the $10,000 limit for state and local tax deductions.
However, repealing the cap would also supply a big tax break to high-income households. Suspending the limitation for one year would cost the government about $88.7 billion, with more than half of the benefits flowing to those earning more $1 million a year, according to the non-partisan Joint Committee on Taxation.
House Democrats have repeatedly tried to repeal the SALT cap, but efforts in prior years failed to gain traction in a GOP-led Senate.
The measure wasn’t included in the $1.9 trillion rescue bill enacted earlier this month, but lawmakers are looking for ways to pass SALT legislation later this year. Senate Majority Leader Chuck Schumer, a New York Democrat, also supports the effort. He introduced legislation to repeal the SALT cap earlier this year.
