As House Republicans prepare to unveil their tax reform bill November 1, state tax experts say it’s still too early to tell what will happen to the state and local tax (SALT) deduction.
The House’s passage of the Senate fiscal 2018 budget resolution October 26 paved the pathfor federal tax reform, reigniting speculation whether the SALT deduction will be preserved or repealed, in full or in part.
The budget, which narrowly passed by a 216–212 vote, includes reconciliation instructions that will allow 51 Senate Republicans to approve tax reform without needing any Democratic votes.
Jonathan Williams of the American Legislative Exchange Council told Tax Analysts on October 26 that it is “a little premature” to predict what House Republicans will propose for the SALT deduction.
Similarly, Max Behlke of the National Conference of State Legislatures said the deduction “is going to be something to watch, to see if the Republicans are really looking to modify or eliminate it.”
The Republican tax reform framework released September 27 appeared to proposerepealing the SALT deduction. However, House Ways and Means Committee Chair Kevin Brady, R-Texas, said October 25 that his tax reform bill would include an agreement to limit the deduction, though he didn't provide details.
Americans Against Double Taxation, a coalition of state and local groups campaigning to keep the SALT deduction, said October 26 that the razor-thin margin by which the House passed the budget resolution “is a clear and unmistakable signal that there’s growing support in Congress to take SALT off the table.”
“If there’s this much opposition to a secret plan with no details, we expect opposition to grow once a concrete proposal takes shape and members fully understand the impact that a full or partial elimination of SALT has on homeowners, home values, public services, infrastructure investment, and the continuing ability of state and local governments to determine their own appropriate mix of revenue sources,” the group said.
New York Gov. Andrew Cuomo (D), a loud and longtime supporter of the SALT deduction, said that “New York will be destroyed if the elimination of state and local tax deductibility is included in any plan.”
He praised the seven New York GOP congressional lawmakers who voted against the Senate budget resolution, calling them “unwilling to allow any tax plan to move forward that contained even the possibility of [the] SALT elimination.” He likewise slammed Republican Reps. Tom Reed and Chris Collins for their “aye” votes, saying they were “derelict in their duty to represent the New Yorkers who sent them to Washington.”
The NCSL on October 26 issued a floor alert to House members, urging them to vote against the budget resolution “unless the congressional leadership guarantees that the SALT deduction will not be eliminated or capped in any tax reform legislation.” The group has sent letters to Congress on the issue.
Behlke said the NCSL will continue to push for preserving the SALT deduction, and that he believes the group's message on the importance of the state and local tax deduction has gotten through.
Williams, who met with lawmakers on Capitol Hill after the October 26 House vote, said he heard “a lot of positive comments” around the discussion of tax reform. He described it as a collaborative environment in which “people are willing to put some of their smaller interests behind” to achieve federal tax reform.
“I’m more optimistic that we [will] get something done by the end of 2017,” Williams said of tax reform, but added that it “could get pushed into the first quarter of 2018.”
Behlke, however, said he believes there is a “50-50 chance that a major tax plan makes it into law this Congress, but I just don’t see there being enough time remaining this year. . . . If something were to get enacted, it would be the early part of 2018.”