Increase in SALT cap makes House bill

By JEFF MORRIS

Shortly after he took office in January 2023, U.S. Rep. Mike Lawler, R-17th CD,  introduced legislation that he said was the first step in repealing the cap on state and local tax (SALT) deductions. Lawler’s bill would have doubled the cap for married couples filing jointly on federal income taxes, raising it to $20,000.

Lawler’s bill never made it to the floor, but he is now celebrating inclusion of an increase in SALT deductions in the spending bill passed by the House, 215-214, in a largely party-line vote.

Under the Tax Cuts and Jobs Act signed by President Donald Trump in December 2017, state and local tax deductions were capped at $10,000 for the 2018 through 2025 tax years. Before that, taxpayers could deduct their total state and local taxes paid, limited only by their federal taxable income, by itemizing deductions and getting a write-off for those payments on their federal income tax return. The $10,000 cap had little impact in states with low or no income taxes and low property tax rates, but has been felt in states such as New York, New Jersey, California and Connecticut. 

The law beefed up the standard deduction, which nearly 90 percent of taxpayers now claim because they don’t have enough write-offs to make itemizing deductions worthwhile. But itemizing is necessary in order to deduct state and local taxes on a federal income tax return.

According to an analysis from the Pew Charitable Trusts, New York taxpayers claimed, on average, $22,169 in state and local taxes on their federal income tax returns prior to passage of the Trump tax law. The $10,000 cap means the average New York taxpayer loses out on more than $12,000 of SALT deductions each year. 

The House Ways & Means Committee added provisions to the new budget bill, under which the SALT deduction cap would increase to $40,000 for individuals making under $500,000 in annual modified adjusted gross income (MAGI), and $20,000 for married individuals filing returns separately making under $200,000 in annual MAGI. The income threshold would increase by 1 percent each year through 2033 but the increased SALT cap would phase out by 30 percent for income in excess of these limits until the cap returns to $10,000 or $5,000 depending on the filer. 

In a statement following House passage of the bill, Lawler said, “This week, the House passed H.R. 1, the One Big, Beautiful Bill. This tax package extends key 2017 tax cuts, puts more money back in the pockets of hardworking New Yorkers, and supports small businesses.”

Lawler confirmed that the bill quadruples the SALT deduction, raising the cap from $10,000 to $40,000 for the next decade, with annual increases. He said 93 percent of middle-class families in the Hudson Valley making under $300,000 will be able to fully deduct their state and local taxes.

“While no bill with this many provisions is perfect,” said Lawler, “this bill marks a huge win for NY-17 families. Critical social programs like Social Security and Medicare are protected, and we ensure the long-term sustainability of Medicaid by eliminating waste, fraud, and abuse. In addition, there are significant tax breaks for middle and working-class families.”

The New York State Association of Counties expressed concerns, saying on May 23, “It is too early to tell at this time of the total fiscal impact this legislation will have on New York state. The bill will likely be altered in the Senate somewhat and renegotiated with the House for a final vote. The bill is big and changes a lot of existing federal policies that New York state leaders have embraced and budgeted for in the current State Financial Plan.”

A big area of concern for counties, said NYSAC, is the impact of large-scale federal funding cuts and eligibility changes in social service programs counties administer and are often required to finance with local tax dollars, pointing out there are also direct cost shifts from the federal government to state and counties in the SNAP nutrition assistance program.

In figures reported by NYSAC, the state is estimating that between 1.5 million to 2 million New Yorkers would lose their current Medicaid or Affordable Care Act (Essential Plan) health insurance coverage. The state budget’s fiscal impact could include an annual loss of $13.5 billion in federal Medicaid funds ($10 billion) and new mandated state spending of $3.5 billion. In addition, for the first time, the federal government would require states to pay for a share of federal nutrition programs costing New York up to $2.1 billion annually, with counties potentially on the hook for a portion of these costs.

Lawler asserted that the legislation would protect and strengthen Medicaid. He said he voted for it because it implements work requirements and eligibility verification for certain individuals, “to eliminate fraud and preserve Medicaid for those who truly need it: seniors, single parents, kids, and individuals with physical, intellectual, or developmental disabilities.” He said it secures Medicaid’s long-term solvency by “protecting the current FMAP floor, to maintain the same level of federal support for New York’s Medicaid program,” and blocks taxpayer-funded Medicaid benefits for illegal immigrants.

He also pointed to other aspects of the bill that he said would benefit the Hudson Valley, including eliminating federal taxes on tip income and overtime pay, “directly helping restaurant workers, union workers, first responders, and other hard-working New Yorkers;” making health care more affordable by preserving safety net hospitals in the Hudson Valley; increasing physician reimbursements; reducing prescription drug costs by cracking down on abuse by pharmacy benefit managers; and making it easier and quicker for kids on Medicaid and CHIP to access specialized out-of-state pediatric treatment.

Lawler further touted the preservation of key provisions from the Trump Tax Cuts set to expire in 2025, including $2,000 Child Tax Credit for nearly 88,000 NY-17 families; 199A Small Business Deduction for over 78,000 local businesses; protection from the Alternative Minimum Tax and increased death tax exemptions for 228 family-owned farms; and prevention of “an average tax increase of nearly $4,000 for families earning the district’s median income.” He also said it supports education and workforce development by expanding Pell Grants to include workforce training and preventing a funding shortfall, and allows medical and dental residents to defer loan payments during training.