On Monday, the Supreme Court refused to review a challenge brought against a tax deduction limit which was implemented by the Trump administration and has continued through the Biden administration.
The SALT (state and local tax) cap doesn’t allow people to deduct more than $10,000 of specific state and local taxes from their federal income taxes through 2025.
As the Tax Foundation explained, the “deduction permits taxpayers who itemize when filing federal taxes to deduct certain taxes paid to state and local governments,” noting that the current cap “[consists] of property taxes plus state income or sales taxes, but not both.”
The deduction provision was included as a way to increase revenue in the 2017 Tax Cuts and Jobs Act in order to make sure it would not add more than $1.5 trillion to the federal deficit over a 10-year period, a House reconciliation necessity, per The Hill.
New York, Connecticut, New Jersey, and Maryland previously challenged the 2017 policy, calling it an overreach into state’s independent rights.
In a court filing from March, the states said, per Fox News, “Congress’s taxing authority (as set forth in Article I, Section 8 and the Sixteenth Amendment) is cabined by the structural requirements of federalism, which prevent the federal government from directly interfering with the States’ ability to generate revenue to sustain their operations.”
“The long history of federal income taxation demonstrates that Congress and the States equally understood that a deduction for all or nearly all state and local property and income taxes was constitutionally required to preserve state sovereign taxing authority,” the filing added.
Lower courts sided against the states, and decided the deduction was allowed, leading the states to bring the issue to the high court.
Last month, the Treasury Department weighed in, asking the court to reject the appeal of the states.
“Congress has acted well within that power both in establishing, and in placing limits on, the deduction for state and local taxes,” the department said in court documents. “As the courts below observed, no constitutional provision compels Congress to provide any SALT deduction, let alone a deduction of a particular amount.”
The SALT tax debate isn’t going away anytime soon.
As Fox News reported, the House passed legislation last year that would bring the cap up to $80,000 until 2031, when it would be limited once again to $10,000. The Senate has not acted on the measure yet, but Senator Bernie Sanders (I-VT) has a plan to limit the tax break according to income levels.
In November, Sanders spoke out against Democrats’ considerations to get rid of the $10,000 cap.
In a statement, Sanders stressed that the potential move by House Democrats at the time would mean “the top 1% would pay lower taxes after passage of the Build Back Better plan than they did after the Trump tax cut in 2017. This is beyond unacceptable.”
In the past, Sanders noted that an adjustment to the SALT deduction limit should be centered on helping the middle class.
“There are middle-class families in states where property taxes are very high that are paying a whole lot in state and local taxes. And I think we have to support them,” Sanders reportedly said during an interview in June.
“On the other hand, if you got some billionaires who own a massive mansion, should they be able to write off their state and local taxes? The answer is no, they should not,” he added.