In 2018, Democratic presidential candidate Joe Biden and his wife took a $ 10,000 deduction for state and local taxes on their federal income tax return (the most recent tax return available for review). While this deduction provided the Bidens with tax savings, it was a fraction of the substantial savings they could have achieved without the Tax Reductions and Employment Act which was promulgated at the end of 2017.
The Tax Cuts and Jobs Act placed a cap of $ 10,000 on the “SALT deduction,” which is the federal deduction you can claim for state and local taxes (SALT) if you itemize . There had been no cap before 2017. If the law had not changed and no limit of $ 10,000 had been imposed, the Bidens would have been able to deduct all of the $ 361,966 they have. paid in national and local taxes in 2018. Indeed, the SALT cap reduced Biden’s tax deductions by nearly $ 352,000.
If Biden wins the presidency and Democrats take control of the Senate after the November election, there is a chance, however, that this deduction cap will disappear and the Bidens potentially recoup their full deduction.
Will the SALT deduction cap survive a Biden presidency?
Since the passage of the Tax Cuts and Jobs Act, Democrats have been working to repeal the SALT deduction cap. Biden has expressed support for the repeal and other leading Democrats (including Senate Minority Leader Chuck Schumer and House Speaker Nancy Pelosi) have targeted the cap.
In fact, the Democratic-controlled House of Representatives recently included a provision in the coronavirus relief bill, the Act on the HEROES, that would have removed the cap for 2020 and 2021 (if the law were passed, which probably won’t). The latest effort follows a bill passed by the House in 2019 – with some Republican support – that would have removed the cap for most Americans, but died upon arrival in the Republican-controlled Senate. For his part, Schumer also pledged repeal, saying in July that one of his first priorities if he became Senate Majority Leader would be to eliminate the SALT cap, which would be “dead, missing and buried.
Democrats, including Biden, are eager to repeal SALT cap because they usually say so hits the residents of the “blue states” harder. States with legislatures controlled by Democrats and / or that vote reliably Democratic in presidential elections (often referred to as blue states) are more likely to fund various government services within the state through income taxes and land rather than through other means (although residents of some of the Red States also fund their governments this way). The higher the national and local tax burden, the more valuable the SALT deduction used be for those who file federal returns.
Republicans added the SALT cap to help deal with some of the lost tax revenue created by other changes enacted by the 2017 law. For some, the SALT cap was seen as a tax targeted by taxpayers. Republicans on the Blue States. Its inclusion in the tax reform bill prompted Democratic heads of government in several of those blue states to sue the federal government, alleging the SALT cap was an unconstitutional attack on their sovereign choices.
While residents of the Blue State have been disproportionately affected by the SALT cap, the tax The burden imposed by the cap has affected some residents in all states. However, it was not distributed evenly in a different way. As Biden’s tax returns and the value of his lost deductions show, the wealthy tend to disproportionately benefit from an uncapped SALT deduction. Most people don’t pay close to the $ 361,996 the Bidens paid their state and local governments. In fact, most people don’t even detail their taxes at all, and the majority of Americans don’t claim all deduction for national and local taxes paid.
A Brookings Institute analysis of tax reporting data suggests that 96% of the benefits of repealing the SALT cap would go to the top quintile of taxpayers. The report says the richest 1% (by income) of tax filers would benefit from an increase in their average tax deduction of $ 33,100, compared to the middle 60%, who would increase their average annual tax deduction by less than $ 27. With other Biden tax plans largely aimed at raising taxes for the rich rather than reducing them, his support for the repeal of the SALT cap is somewhat at odds with his other proposals, although it is also in line with the majority position within the Democratic Party leadership.
If you’ve paid more than $ 10,000 in state and local taxes and itemize, a repeal could save you money on your IRS bill if Biden is elected and the Democrats pushing for it. legislative change are successful in their repeal efforts. Otherwise, you will be grouped together among the majority of Americans not really concerned by this repeal proposal.