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As some of the states that have been hit hardest by the coronavirus outbreak, including New York and New Jersey, eye a pathway toward reopening their economies, state leaders are renewing a push for lawmakers to repeal the $10,000 cap on state and local tax deductions.
“The governors and state governments are going to be pushing even harder for this,” Timothy Noonan, state and local tax expert and partner at Hodgson Russ, told FOX Business. “Not only has this caused so much damage to these big states, but it’s going to continue to cause damage.”
New York Gov. Andrew Cuomo, who has been leading mitigation efforts in the hardest-hit state in the entire country, recently began making pleas for lawmakers to repeal the policy, which was implemented as part of the 2017 Tax Cuts and Jobs Act.
During a press briefing on Saturday, Cuomo suggested repealing the measure is logical because it would help the places that have been affected the most by the economic standstill caused by coronavirus pandemic.
“You want to help New York, which is the most heavily impacted? By the way, you think you're going to reopen the economy without the engine of the New York metropolitan area? You're kidding yourself,” Cuomo said. “You want to help New York, you want to help the places that are affected? Then repeal the SALT provision … which literally targeted New York and some of these places, Michigan, Detroit, California.”
During a recent press briefing, New Jersey Gov. Phil Murphy added that undoing the SALT cap would be a form of “main street stimulus.”
“Congress should undo the SALT deduction cap to help New Jersey’s middle-class homeowners,” Murphy said. “Speaker Pelosi and I spoke not just about the general need for another step and another bill and stimulus coming from Congress, but specifically spoke about lifting the SALT cap.”
Repealing the cap could be helpful in these states as they consider how to return to business as usual once the coronavirus crisis subsides. It has caused an exodus from these higher-tax states, which has, in turn, resulted in a loss of state tax revenues.
Last year, Cuomo lamented changes to the cap on state and local tax deductions. The provision of the Tax Cuts and Jobs Act that placed a cap on SALT deductions and helped cause an exodus of taxpayers, was part of the cause for the state’s $2.3 billion budget hole, Cuomo has said. Prior to its implementation, the average deduction claimed by New York residents was more than $20,000.
Another wave of move-outs may be in the works because of the coronavirus crisis. Many people with second homes or vacation homes have shelter there, and as the health care concerns caused by the pandemic pile onto existing tax frustrations, Noonan said.
The White House has pushed back at efforts to overturn the provision for years. Indeed, a legal challenge that was launched by New York, New Jersey, Connecticut and Maryland is making its way through the courts.
However, given the current economic situation, the possibility the cap could be overturned is higher.
“I think in this environment, anything is possible,” Noonan said. “I think everything is on the table.”
A spokesperson for the Treasury Department did not return FOX Business’ request for comment.
House Democrats unveiled a bill last year to overturn the SALT cap. The bill aimed to repeal the provision in 2020 and 2021, and it would have doubled the cap for married couples to $20,000 in 2019. The changes would be paid for by raising the top income tax rate on the wealthiest individuals to 39.6 percent, from 37 percent, which would restore it to pre-Tax Cuts and Jobs Act levels. Further, it would lower the income threshold for people who would be exposed to the top rate.
Trump threatened to veto the legislation at the time. Noonan said it went over like a “lead balloon” in Congress.