Early 2019 bills include repeal of $10,000 SALT cap
WASHINGTON — Two House lawmakers last week reintroduced a bipartisan bill to repeal the $10,000 cap on the federal deduction for state and local taxes, but other bills friendly to the municipal bond market have yet to be introduced in the new Congress.
Repeal of that cap, known as the SALT cap, is among the legislative priorities of the Government Finance Officers Association and other state and local organizations. Local governments are concerned that the $10,000 federal cap will make homeowners more sensitive to property tax or income tax increases, perhaps restricting the ability of local governments to raise money to finance infrastructure.
Emily Brock, director of GFOA’s federal liaison center, said restoration of advance refundings and increasing the limit on bank qualified debt to $30 million also are among the legislative priorities for 2019.
“We don’t have an advance refundings sponsor yet only because the House Municipal Finance Caucus is only just getting off the ground,” Brock said, indicating her hope is that a bill is introduced in the next several weeks.
A bill to increase the limit on bank qualified debt to $30 million from the current $10 million also has not yet been introduced, but one was sponsored in the last Congress by Democratic Sens. Robert Menendez of New Jersey and Ben Cardin of Maryland.
The SALT cap enacted as part of the 2017 Tax Cuts and Jobs Act is being challenged in federal district court in New York and several states have enacted workarounds through the establishment of new charitable tax credits.
The Internal Revenue Service, in response, is preparing to finalize a regulation that would limit the use of state tax credits.
New York Reps. Nita Lowey, a Democrat, and Peter King, a Republican, introduced H.R. 188 and 229 in response to complaints by constituents in the suburbs of New York City that they won’t be able to fully deduct their high property taxes and state income taxes.
Lowey, who chairs the House Appropriations Committee, told The Journal News that her phone has been “ringing off the hook.”
“I’m getting letters, emails,” she told the local newspaper. “People are furious.”
Brock doesn’t think repeal of the SALT cap will progress as a standalone bill and is more likely to be packaged with other priorities of House Ways and Means Committee Chairman Richard Neal, D-Mass.
“I think that Chairman Neal, having been a past mayor, understands the world of municipal finance and how that intertwines with the conversations that are being held on the Hill about infrastructure,” Brock said.
Repeal of the SALT cap would result in a loss of $81 billion in federal revenue this year and a total of $763 billion through the 2025 expiration of the cap under current law, according to the conservative Tax Foundation.
The Tax Policy Center, another Washington think tank, estimates repeal of the cap would reduce federal tax revenues by $620 billion between 2018 and 2028.
However, the new Democratic majority in the House is preparing for the possible rollback of part of the corporate tax cuts enacted a year ago as a revenue offset for any new policy initiatives they enact.
House Budget Committee Chairman John Yarmuth told the newspaper Roll Call on Friday that the 2020 budget resolution will include revenue from increasing the corporate tax rate to 28% from 21% and possibly hiking individual tax rates from high income households.
Those revenue producing measures could be used to repeal the SALT cap or to pay for infrastructure legislation or a combination of the two.