This past Monday, the Supreme Court declined to review a challenge on the $10,000 ceiling imposed on the state and local tax (SALT) deduction. The SALT deduction cap was one of the most controversial provisions made in the 2017 tax bill brought to fruition by Trump and GOP Congress in 2017. The ruling by the Supreme Court put a swift end to the legal challenges brought by high-tax Democratic states (New York, New Jersey, Maryland, and Connecticut).
SALT Tax Deduction Review
A SALT deduction+ can only be utilized by those who itemize their deductions. Those who do so can then take the property, sales, or income taxes already paid to the state and local governments and use them when itemizing their federal deductions. When the $10,000 deduction cap was placed on this in 2017, high-tax states were impacted in a very negative way as a lot of residents would typically collect over $10,000 from SALT deductions in the past. To give you a better idea, the average SALT deductions claimed in New York were $23,804 compared to $5,451 in Alaska according to IRS data – the data shows that high-tax states are impacted far greater than low-tax states making it clear why they would want to fight this.
Status Update of Challenge
The cap on SALT deductions has long been opposed by Democrats in high-tax states. New York, Maryland, Connecticut, and New Jersey all sued the Trump Administration in 2018, calling the cap an unconstitutional attempt to interfere with states’ taxing power and “coerce Democratic-leaning states to cut taxes and the services they pay for.”
Many politicians on both sides of the aisle disagree with the four states’ appeal as they think it will only truly benefit the upper-class citizens from said states, Howard Gleckman, an analyst at the Tax Policy Center provided a good statistic to back this, “Only about 9 percent of households would benefit from the repeal of the Tax Cuts and Jobs Act’s (TCJA) $10,000 cap on the state and local property tax (SALT) deduction, .ore than 96 percent of the tax cut would go to the highest-income 20 percent of households. The top 1 percent of households, those making $755,000 or more, would receive more than 56 percent of the tax cut. TPC estimated repeal would reduce federal tax revenues by $620 billion between 2018 and 2028.” Alexandria Ocasio-Cortez (D-NY) also shared thoughts on the plan to raise the cap referring to it as a “gift to billionaires.”
Wrap Up
With opposition towards raising the cap being felt from both sides of the aisle, as well as the Supreme Court’s swift action to shut the requested review down, it does not appear anything drastic will happen to the SALT cap, at least for a while. This being said, there is still a massive push to be had by New York, New Jersey, Connecticut, and Maryland as they will need to figure out how to reduce their citizens’ tax liability. Without any further changes made to the SALT deduction cap, it is set to expire in 2026. We will keep our eyes peeled to see if anything happens before then!
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