Feb 21, 2024
The House is considering expanding the state and local tax deduction limit for higher-income married couples in high-tax states.
The bill, sponsored by Rep. Michael Lawler, R-N.Y., would double the cap for the state and local tax deduction (also known as SALT), from $10,000 to $20,000 for married couples earning up to $500,000 a year for the 2023 tax-filing season.
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"This is a pro-family tax measure that rights a wrong, and this ultimately is about fairness," Lawler said in a recent committee hearing.
Why some lawmakers want to lift the limit
Congress initially capped the deduction for both single taxpayers and couples at $10,000 to help pay for former President Donald Trump’s 2017 tax cuts — but some consider the limit a penalty on married couples, who typically report higher total earnings than a single filer would.
And although it’s mainly wealthy taxpayers being impacted, several lawmakers have highlighted the cap also affects some middle-class homeowners who live in places where property taxes are rising as well, including in the Northeast and West Coast.
If enacted, the “SALT Marriage Penalty Elimination Act” would allow married couples filing jointly to double their SALT deduction for the current tax season, and then reset back to the $10,000 cap until its expiration in 2026.
House lawmakers are expected to vote on the proposed bill in the coming days.
Critics say the bill would increase the budget deficit
The Tax Foundation estimated the proposed change to SALT deduction cap would cost the U.S. about $11.7 billion, with about $9 billion of the lost revenue going toward joint filers earning more than $200,000 a year.
"While the bill would offer incremental relief, it would increase the budget deficit, create a new cliff in the tax code and mostly benefit higher earners, all without improving long-run economic
growth," Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation, said.
“Only about 1.3% of the total tax change would accrue to taxpayers earning under $100,000, and less than 1% of filers in this group would see a tax cut.”
Watson added that slashing the SALT cap to $5,000 for single filers would be another way to adjust for the marriage penalty without adding to the budget deficit and benefiting the rich.
Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.
