Bill to Rescind SALT Deduction Cap, Introduced by Sen. Menendez and Rep. Pascrell

U.S. Sen. Bob Menendez (D-NJ) and U.S. Rep. Bill Pascrell, Jr. (D-9), senior members of the tax-writing Senate Finance and House Ways and Means committees, unveiled a bipartisan, bicameral bill to repeal the federal cap on state and local tax (SALT) deductions, imposed by the Trump Tax Law of 2017. With the beginning of tax-filing season underway, many taxpayers—especially in higher cost states like New Jersey—are just now realizing that they owe significantly more on their taxes as a result of the SALT cap.

“We’re just two weeks into the tax-filing season, and thousands of taxpayers across New Jersey are now fully realizing how bad the Trump Tax Law and it’s gutting of the property tax write-off is for them and their families,” said Sen. Menendez. “We know all too well that New Jersey is a high cost state, where families face high property tax bills and high cost of living. Well, our bill is designed to provide some relief. Generally speaking, the more you pay in property and state taxes, the more relief you’ll get from our bill. Allowing property taxes to be fully deducted has been a bedrock principle of our tax code and is commonsense tax policy that rewards states that invest in things like education, public safety, infrastructure and economic opportunity for all.”

“The Trump tax scam law specifically targeted our state by capping the State and Local Tax deduction,” said Rep. Pascrell. “The vast majority of those claiming the deduction are middle-class households, especially in New Jersey. In my district, 37 percent of taxpayers claim the deduction with the average amount at $18,668. In some parts of N.J.-09 the average is over $24,000—that’s not small change. So, this tax season, a lot of my constituents are taking a hit on their tax bills and desperately need relief. This bipartisan effort is about providing that relief to New Jersey taxpayers by reinstating the full SALT deductions our constituents have long enjoyed. Passing our SALT Act of 2019 is one of my absolutely top priorities this Congress.”

The Stop Attacking Local Taxpayers (SALT) Act of 2019 fully restores the SALT deduction, which has been part of the tax code since the federal income tax was created in 1913. It also restores the top individual income tax rate at 39.6%, the rate at which upper income was taxed prior to passage of the Trump Tax Law. Passed by the Republican-controlled Congress on a party-line vote in December 2017, the Trump Tax Law capped the SALT deduction at $10,000. This is the first tax-filing season under the new law, which went into effect for the 2018 tax year.

The SALT deduction allows taxpayers to write-off taxes paid at the state and local level from their federal income tax bill so they won’t be subject to being taxed twice on the same dollar. In addition to helping families avoid double taxation, the SALT deduction supports the ability of communities, cities, and states to raise their own revenues and fund critical investments in public education, infrastructure, social services, and public safety.

In 2017, about 30% of taxpayers claimed the deduction, and more than 80% of those filers earned under $200,000—middle class in high cost-of-living states. In New Jersey, 1.8 million or 40% of taxpayers deducted their local property and state income taxes in 2016, the last year the data is available, averaging $18,000 per deduction.

According to a recent survey by the New Jersey Society of Certified Public Accountants (NJCPA) of more than 300 CPAs in the state, more than 63% said their individual and family clients earning less than $200,000 will see their federal tax bill rise as a result of the SALT cap. Nearly 70% said the SALT cap would definitely or somewhat influence their advice to

clients on whether to leave New Jersey. One CPA said, “I had a client who earns $60,000 and she lost $2,500 of refund compared to 2017. Another said, “It seems that Trump did not understand or fully appreciate the affect this would have on middle class taxpayers in high tax states like N.J.”