WASHINGTON -- State and local government groups suffered a setback Thursday in their effort to preserve the federal deduction for state and local taxes when the Senate rejected an amendment to its 2018 budget resolution that would have preserved it.

A spokeswoman for the Government Finance Officers Association described the vote as “disappointing.”

Sen. Maria Cantwell, D-Wash.

“It’s pretty clear from today’s activities that SALT will be considered as a preferred mechanism for funding comprehensive tax reform,” said Emily Brock, director of GFOA's Federal Liaison Center.

Earlier this week GFOA unveiled a zip code calculator that shows that the elimination of the SALT deduction would raise taxes on a middle-income family of four if they owned a home in many parts of the country.

The calculator compares the federal tax bill for households that itemize their current deductions using Internal Revenue Service data from 2015 and compare it with the Republican plan to almost double the standard deduction to $24,000 for a couple.

“I think it’s a pretty clear sign we haven’t canvassed enough of our data, which clearly shows the incidence and the magnitude of SALT for middle income taxpayers across the United States,” Brock said. “So we will continue to have conversations with Senate offices and convey our data on what the impact is.”

Brock said she was especially disappointed that some Republican senators who formerly served as governors didn’t vote in support of SALT.

The proposal by Sens. Maria Cantwell, D-Wash., and Chris Van Hollen, D-Md., failed in a party line vote by Republicans who tabled it 52-47. Democrats unanimously supported it.

Cantwell wanted to create a point of order “against any tax bill that raises taxes on middle-class families by eliminating or limiting the state and local deduction.”

Instead, Senate Republicans approved an alternative amendment by Sen. Shelly Moore Capito, R-W.Va. that allows the repeal of the SALT deduction to establish a “deficit neutral reserve fund relating to tax relief for hard-working middle class Americans.”

The National League of Cities condemned the Capito amendment as a threat to the SALT deduction.

“Local leaders know that SALT prevents double taxation by allowing millions of middle class families to deduct their local property, sales and income taxes, and helps local governments raise the revenues needed to make critical investments in infrastructure, public safety and education,” said NLC President Matt Zone, a member of the City Council of Cleveland, Ohio.
Zone said the Senate’s budget resolution “sends a message to cities that they are expected to continue doing more with less.”

“Any plan that truly claims to grow the American economy must include cities,” Zone said. “We will continue to send a strong message back to Congress and the administration: SALT and the tax exemption on municipal bonds are nonnegotiable, and tax reform cannot come at the expense of local governments and middle class families.”

Senate Republicans are using the 2018 budget resolution to allow tax legislation to be approved under a so-called reconciliation process that allows passage in the Senate by a simple majority instead of a 60-vote supermajority.

Elimination of the deduction for state and local taxes is being used by Republicans to raise revenue that will offset reductions in corporate and individual tax rates.

Republican lawmakers who support eliminating the SALT deduction say they will protect middle-class families by doubling the standard deduction.

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