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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.

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Democratic House Passes Short-term SALT Cap Repeal Bill

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Employees nationwide are working to finish year-end business before the holidays and House Democrats are no exception. The U.S. House of Representatives voted 218 to 206 on December 19 to pass H.R. 5377 (the “bill”) which temporarily repeals the SALT deduction cap for 2020 and 2021.

The Tax Cuts and Jobs Act, passed in 2017, imposed the $10,000 cap through tax year 2025. Under the bill called “The Restoring Tax Fairness for States and Localities Act” introduced by Representative Suozzi (D-NY), the cap for married couples would double 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 through 2025. Further, it would lower the income threshold for people who would be exposed to the top rate. House Ways and Means Committee Chair Richard E. Neal (D-MA), offered the amended version of H.R. 5377 that added provisions which would increase from $250 to $500 above-the-line deductible expenses for educators and create a comparable deduction for first responders whose tax rate changes would stay in effect through 2025.

The vote on the bill was delayed for almost two hours after Ways and Means Committee member Tom Rice, (R-SC), introduced a motion to prevent individuals making $100 million or more from benefiting from the SALT deduction cap’s repeal. Democrats ended up voting for the motion, which passed 388 to 36, and the bill was amended to include Congressman Rice’s changes.

The SALT cap has been a tremendous thorn in the sides of many blue states since its inception two years ago. In late September 2019, a federal court judge dismissed a lawsuit filed July 18, 2018 by New York, New Jersey, Connecticut, and Maryland which argued, among other things, that the SALT cap was unconstitutional. The four states remain adamant about fighting the cap and on November 26, 2019 filed an appeal of that decision. We covered the lawsuit here, here, and here. New York Attorney General Letitia James said that the cap is expected to cost New York's taxpayers more than $100 billion, as the wealthy flee to lower-tax havens, like Florida. Even President Trump, a lifelong New Yorker, recently announced that he changed his domicile to Palm Beach, Florida.

But the bill isn’t expected to advance any further. Senate Republicans have made it clear that they won’t support the bill, and the Trump Administration issued a statement December 18 stating that it strongly opposes House passage of H.R. 5377. The statement noted that “This legislation would unfairly force all Federal taxpayers to subsidize a tax break for the wealthy, as well as excessive government spending by fiscally irresponsible States. H.R. 5377 would likely cause State and local governments to raise taxes, all while hindering the growth of small businesses and opportunities for workers.”

Despite Trump’s promise to veto H.R. 5377, it has been lauded as another strong step in the right direction by those unrelenting forces who continue the fight the SALT cap. It would raise an estimated $6.2 billion, according to an analysis released by the Joint Committee on Taxation. As this current year winds down, stay tuned for more SALT cap updates in 2020.

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