House lawmakers are considering relief for the “marriage penalty” affecting the federal deduction limit on state and local taxes (SALT). Though the bill lacks widespread support, experts suggest it could influence future tax policy discussions.
Implemented through the Republicans’ 2017 tax reform, there currently exists a $10,000 cap on the federal deduction for SALT. This cap has been a significant concern for certain lawmakers in high-tax states like New York, New Jersey, and California. If left unchanged by Congress, the $10,000 limit will expire after 2025, resulting in no deduction cap.
Dubbed the SALT Marriage Penalty Elimination Act, the House bill proposes doubling the limit to $20,000 for married couples filing jointly with an adjusted gross income of less than $500,000. The proposed change would be temporary and retroactive, applying from December 31, 2022, to January 1, 2024.
Since 2018, filers who itemize deductions have been unable to claim more than $10,000 for SALT, covering property and state income taxes. Some lawmakers argue that this penalizes married couples filing jointly, as each taxpayer could claim $10,000 if filing separately.
On Wednesday afternoon, lawmakers will vote on a procedural motion regarding the bill’s future consideration in the House.
“There hasn’t been a lot of consensus on what the design of the SALT cap may look like post-2025,” Garrett Watson stated. “This helps establish the beginning of the conversation.”
SALT Mostly Helps Affluent Households
Although proponents of SALT reform have highlighted the advantages for middle-class households, a recent Tax Policy Center research indicates that the present measure would primarily benefit wealthier households.
The results demonstrate that, should the interim modification be implemented, households earning between $200,000 and $1 million would gain by more than 90%.
John Buhl, senior communications manager at the Urban Institute, stated, “The wealthy already came out pretty well from the Tax Cuts and Jobs Act and this is just giving them a little bit extra.”
Similar conclusions were drawn from a recent investigation by Tax Foundation, which showed that higher earners are typically the ones who itemize deductions and have SALT expenses over $10,000.
According to a Tax Foundation estimate, the proposal would result in a 0.3% increase in after-tax income for the wealthiest 20% of taxpayers, while the bottom 40% of households would experience minimal changes.
