Raising cap on federal tax deductions is in play as Congress debates infrastructure plan, congresswoman says
CHICAGO — Democratic U.S. Rep. Lauren Underwood said Wednesday that efforts to lift a Republican-imposed cap on deducting state and local income taxes from federal taxes is part of larger discussions on tax policy being looked at to fund a new national infrastructure package.
“We believe that any adjustments to tax policy must include an adjustment to the SALT deduction to benefit working families — period,” Underwood said, using the acronym for state and local taxes.
As part of the Trump 2017 Tax Cuts and Jobs Act, backed by a GOP-led Congress, a $10,000 cap was placed on the ability of federal taxpayers to deduct local property taxes and either state income or sales taxes if they itemized their deductions. Previously no cap existed for the deduction, which was part of the original 1913 federal income tax act.
The 2017 law also increased the standard deduction for this year to $12,400 for a single person or $24,800 for joint filers. That means for a taxpayer to gain any benefit from itemizing, the amount of state and local taxes, certain health care expenses, charitable contributions and mortgage interest paid would have to exceed those amounts.
Underwood, of Naperville, and U.S. Rep. Sean Casten, a Downers Grove Democrat, are co-sponsors of legislation that would increase the $10,000 SALT cap to $15,000 for individual filers and allow people married and filing jointly to double their deduction up to $30,000. Future deduction amounts would be indexed to inflation.
“This is real money with a real impact on families in our communities,” Underwood said of the cap.
Underwood and other Democrats in high-tax states have maintained the caps were part of a partisan effort to make blue states subsidize Trump-backed tax cuts for the wealthy. Republicans contended the unlimited state and local tax deductions amounted to a federal subsidy that encouraged higher taxes in Democratic states.
Before emergency pandemic funding, many high-tax states actually sent more money to the federal government in taxes than they received back in benefits.
Underwood contended the limited deductibility of local property taxes was a disincentive to fund local services including schools and emergency first responders, meaning state and local governments “will likely struggle even more than they do now to raise adequate revenue.”
As part of negotiations over a massive infrastructure bill, Democrats have focused on raising the corporate tax rate and increasing tax enforcement. Those sources, she said, would provide funding to make up for any drop caused by increasing the tax deduction.
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