Issuing bonds a harder feat since SALT cap
High property taxes paired with a $10,000 cap on the federal deduction for state and local taxes has left localities strapped for cash and less able to raise taxes and issue bonds, local officials told federal lawmakers Tuesday.
At a House Ways and Means subcommittee hearing, Dr. Paul Imhoff, superintendent of the Upper Arlington School District in Ohio, said the SALT cap, enacted in the 2017 Tax Cuts and Jobs Act, makes it more difficult to issue bonds in his state.
“I’m hearing anecdotally in our community that because of this change, people are going to be less likely to approve all manners of tax increases, including bond issues,” Imhoff told The Bond Buyer. He added that many districts in Ohio still have significant capital needs and he was concerned the SALT cap would make it more difficult to meet those needs.
Imhoff said residents were more likely to vote yes for higher taxes because they knew if their taxes went up, it would be a fully deductible expense, he said.
“They aren’t going to feel as much pain for it,” Imhoff said before SALT. “That has ended for us now.”
The limit on the SALT deduction caused an estimated 10.88 million individual taxpayers to lose $323.1 billion in tax deductions for the 2018 tax year, the Treasury Inspector General for Tax Administration reported in February. The impact has been the greatest in high income, high tax states where many residents pay substantial property taxes and income taxes.
New York and New Jersey introduced workarounds in the form of state tax credits, and other states considered them, but the Treasury and Internal Revenue Service issued final regulations earlier this month clamping down on those measures and making clear they couldn't be used to offset federal taxes.
Next fall, Imhoff said there will be an operating levy on the ballot for the district and the average taxpayer in the district won’t be able to deduct the new money since they are already at the $10,000 limit on their property taxes.
“Passing any sort of an increase in taxes is always difficult, always, always difficult,” Imhoff said. “So this is making it even more difficult.”
House Ways and Means Committee Chairman Richard Neal, D-Mass., a former mayor of Springfield, Massachusetts, has been opposed to the SALT cap in the past.
“It is from that lens (as mayor of Springfield) that I view the issues of state and local tax deductions or SALT as we call it,” Neal said at the hearing.
Rep. Mike Thompson, D- Calif., called the SALT deduction one of the most divisive and controversial provisions arising from the TCJA.
“The process that brought us the tax law — written behind closed doors and hastily passed a mere 51 days after its introduction — cut corners and skipped important fact-finding hearings like this one,” Thompson said.
Thompson argued that the cost of living varies from coast to coast and residents need to be able to pay the rent or mortgage wherever they live.
In Falls Church, Virginia, Mayor David Tarter said the SALT cap leads tax money that could have gone to cities to go to the federal government instead.
In recent years, the town of Falls Church built a new middle school, expanded two elementary schools, and earlier this month broke ground on a new high school and renovated their city hall, Tarter said.
“These capital investments are expensive and our citizens view them as a necessary part of maintaining the Falls Church way of life and investments in our community’s future.”
The median cost of a single-family home is $825,000 and it’s not a mansion, Tarter said. Property taxes for that home will be about $11,000, he said, exceeding the SALT cap.
With household income stacked against the cost of living, residents struggle to make house payments, pay taxes and make ends meet, Tarter said.
The hearing followed on the heels of a recent report from the Joint Committee on Taxation released Monday.
The report details how repealing the cap would result in a decrease of tax burdens for households earning at least $1 million or 52% in additional tax breaks.
A repeal would also result in a decrease in tax liability for 13.1 million taxpayers, 94% of which have $100,000 or more of income, according to the report.
Bipartisan legislation to repeal the cap was introduced earlier this year, and is supported by state and local groups including the Government Finance Officers Association.