Senate Democrats push repeal of state and local tax rule

The $10,000 state tax deduction limit was a key feature of the 2017 tax code overhaul

Senate Minority Leader Chuck Schumer, D-N.Y., answers questions following a vote on the budget agreement on Thursday, August 1, 2019. Senate Democrats will push to repeal a Treasury Department and IRS rule, which goes into effect Aug. 11. (Caroline Brehman/CQ Roll Call)

Senate Democrats will push to repeal a Treasury Department and IRS rule, which goes into effect Aug. 11, that they say would “block critical state workarounds” to the $10,000 limitation on state and local tax deductions.

The $10,000 deduction limit was a key feature of the 2017 tax code overhaul, and has been the subject of hearings in the House Ways and Means Committee where Democratic members are urging a repeal of that provision.

[SALT Still Rubs the Democrats’ Tax Wounds]

Critics say the “SALT” cap disproportionately hits blue state constituents whose state and local taxes tend to be higher, and some states had sought to allow taxpayers to claim credits in exchange for charitable donations to state or local government entities. The Treasury regulations, finalized last month, would reduce deductions for such charitable donations by the amount of any tax credits they receive from state or local governments for those donations.

At a press conference Thursday, Minority Leader Charles E. Schumer, D-N.Y., announced that Senate Democrats would attempt to overturn the rule through the Congressional Review Act, which gives Congress a limited amount of time to overturn new agency rules. The Treasury rule was published in the Federal Register on June 13. Under the review act, Congress has 60 legislative days for both chambers to repeal the rule.

Ten other Senate Democrats have signed onto the resolution (S J Res 50) so far. If backers obtain 30 signatures on a CRA petition, the resolution would be automatically discharged from committee after 20 days. The measure wouldn’t be subject to filibuster in the Senate, and debate is limited to 10 hours, with no amendments.

The Senate resolution is identical to one introduced in the House by Mikie Sherrill, D-N.J., and Peter T. King, R-N.Y., which has 51 cosponsors.

The IRS and Treasury have said without its rule, taxpayers would be able to use state tax credit programs “to circumvent” the $10,000 deduction limit. So, if a taxpayer makes a $1,000 contribution that is eligible for a 70 percent, or $700, state tax credit, he or she should only be able to deduct the net amount of $300 from federal taxes, not $1,000.

The rule applies to contributions made after Aug. 27, 2018.

The other Senate Democrats supporting the legislation are Finance Committee ranking member Ron Wyden of Oregon, Robert Menendez and Cory Booker of New Jersey, Patty Murray of Washington, Richard J. Durbin of Illinois, Jeff Merkley of Oregon, Kirsten Gillibrand of New York, Richard Blumenthal and Christopher S. Murphy of Connecticut, and Chris Van Hollen of Maryland.

While the House could likely pass the resolution, it’s unclear if Senate Democrats could muster a simple majority given Republicans control 53 seats in that chamber.

Even if they did, President Donald Trump’s signature would still be needed. While a New Yorker himself, one of Trump’s signature policy achievements has been the 2017 tax law, and he hasn’t endorsed any of the various pushes to undo the SALT cap.

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