Higher SALT cap taking flak in the Senate
3 min read
Bloomberg News
The House version of the One Big Beautiful Bill Act would raise the cap on state and local tax deductions as a concession to GOP representatives from high tax states, but the change may not make it through the Senate.
Senate Majority leader John Thune, R–S.D., made his views on the matter clear during a press conference on Wednesday, saying the Senate will “start from a position that there really isn’t a single Republican senator who cares much about the SALT issue.”
Mike Crapo, R–Idaho, who chairs the Senate Finance Committee, notes there are no Republican Senators from New York, New Jersey, or California, which are areas of SALT reform support in the House.
The House bill would raise the cap on the SALT deduction to $40,000 from $10,000 for people making under $500,000 with annual 1% increases through 2033. The current limit is set to expire at the end of the year with the rest of the 2017 Tax Cuts and Jobs Act.
Raising the cap is major bargaining chip put into play by the members of the bipartisan SALT Caucus to secure the votes needed to pass the OBBBA.
Issuer advocates would like to see the cap lifted because they feel it restricts municipalities’ ability to levy local taxes that could be used to back bonds.
The SALT battle is also spilling into interest groups focused on reining in an out-of-control budget process.
“The House bill already suffers from a math problem, as the tax cuts exceed $4 trillion and the package would raise the budget deficit by about $2.6 trillion over 10 years including proposed spending cuts,” writes Garrett Watson, Tax Foundation, director of policy analysis for the Tax Foundation.
“A more costly SALT deduction also creates missed opportunities for sound tax policy in the package.” Watson’s observations appeared in an Op-Ed published in the Daily News on Wednesday.
The SALT cap has been controversial since it was created as thirty-five states and New York City have created legal workarounds, known as pass-through exemptions.
PTEs allow business owners to receive their income through their businesses which triggers a state tax credit which helps offset the cap.
Tax experts
Muni sources on the Hill concur there’s not much interest in the Senate about approving a very expensive SALT cap while holding their breath about potential revenue raisers including the future of tax-exempt municipal bonds.
“I do think there will be a multitude of changes,” said Brett Bolton SVP, Bond Dealers of America. “Even if this does pass the Senate without the tax exemption being affected, you might have a conference committee or a go again in the house to tweak it again.
“While progress has been made, we’re nowhere near the end of this discussion.”
Senate leadership is also
