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As Congress and the Trump administration begin talks on a fourth round of fiscal stimulus to address the economic damage caused by the coronavirus pandemic, House Speaker Nancy Pelosi has proposed lifting the cap on state and local tax deductions.
Easing the limit on state and local tax deductions, known as SALT, would benefit an estimated 13 million American households, nearly all of which earn at least $100,000 a year.
Pelosi told The New York Times earlier this week that the next economic rescue package passed by Congress should include additional measures to provide cash directly to individuals, a feat that could be accomplished, she said, by “retroactively undoing SALT.” The Republican-passed 2017 Tax Cuts and Jobs Act prevents households from deducting more than $10,000 a year in state and local tax expenses from their federal tax bill.
According to the left-leaning Center on Budget and Policy Priorities, eliminating the cap would “overwhelmingly benefit high-income households, since most low- and middle-income taxpayers don’t face the SALT cap.” Repealing that limit would largely benefit high-tax and Democratic-leaning states like New York, California and New Jersey.
A spokesperson for Pelosi, Henry Connelly, told the Times that the California Democrat intends to propose something narrower than a full SALT rollback, and that any change would be “tailored to focus on middle-class earners and include limitations on the higher end.”
Last year, the congressional Joint Committee on Taxation estimated that repealing the SALT limit for 2019 would reduce federal revenues by about $77 billion. But it would predominantly help Americans who earn more than $1 million, with those taxpayers collectively reaping about $40 billion of those benefits. The majority of the benefits would go to households that earn more than $200,000.
Still, any attempt by Democrats to include the rollback in a bill will likely face objections from Republicans.
“I’m not going to allow this to be an opportunity for the Democrats to achieve unrelated policy items they wouldn’t otherwise be able to pass,” Senate Majority Leader Mitch McConnell said during an interview with Hugh Hewitt on Tuesday morning.
Discussion of a new round of economic stimulus is in the early stages. Pelosi said Wednesday the House might take up a bill shortly after its scheduled return to Washington on April 20.
It’s unclear what exactly will be included in the bill, but Trump has floated hazard pay for health care workers on the frontline of the coronavirus pandemic.
“It’s something we’re discussing in terms of bonus or bonus pay,” Trump said Wednesday evening during a White House briefing. “They’re like warriors, they’re like soldiers,” he added, referring to doctors, nurses and other health care workers grappling with the outbreak of COVID-19, the disease caused by the novel coronavirus.
Last week, Trump signed into law a $2.2 trillion relief package, which included cash payments of up to $1,200 for individuals who earn less than $99,000 and up to $2,400 checks for couples who earn less than $198,000, as well as $500 for every child.