Republicans and Democrats are trying to find a middle ground on several provisions in order to pass another coronavirus stimulus package, including whether to repeal a $10,000 cap on state and local tax deductions.
Senate Minority Leader Chuck Schumer, D-N.Y., unveiled a proposal in mid-July along with Congressman Tom Suozzi, D-N.Y., to fully restore the deduction in the next relief package.
However, Republicans have traditionally opposed repealing the cap – which was implemented as part of the 2017 Tax Cuts and Jobs Act – arguing that it primarily favors wealthy individuals in high-tax states, which have been accused of budget mismanagement prior to the pandemic.
Earlier this week, Senate Majority Leader Mitch McConnell blamed Democrats for holding up the package over “’an unrelated tax cut for rich people.”
The Kentucky Republican made similar comments at the end of July.
Schumer has maintained that the bill needs to support state and local governments.
While the Republican-sponsored HEALS Act does not adjust the measure, House Democrats approved a stimulus proposal in May that called for reinstating the SALT deduction for 2020 and 2021.
Repealing the cap could be helpful in high-tax 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.
“We need to bring our federal dollars back home and cushion the blow this virus –and this harmful SALT cap--has dealt so many homeowners and families locally,” Schumer said in a statement.
Suozzi added that families would leave New York without the measure.
The White House has repeatedly pushed back at efforts to overturn the provision for years. A legal challenge that was launched by New York, New Jersey, Connecticut and Maryland is making its way through the courts.
A handful of local officials have been outspoken about repealing the provision, including New York Gov. Andrew Cuomo, who is trying to get Manhattan’s wealthiest taxpayers to return to the city.
Cuomo said in May that repealing the cap would be the “single best piece of action” to help the state, claiming it costs New York state about $29 billion per year.
New Jersey Gov. Phil Murphy also said undoing the cap would be a form of “main street stimulus.”