During the House Ways and Means Select Revenue Measures Subcommittee hearing on "How Recent Limitations to the SALT Deduction Harm Communities, Schools, First Responders, and Housing Values" on June 25, Democratic members expressed concern about the effect on constituents of the Tax Cuts and Jobs Act's (TCJA) $10,000 annual cap on the state and local tax (SALT) deduction, and Republican members highlighted what the cap paid for in the bill.

The hearing included debate over who would benefit from repeal of the cap, following the release this week of a Joint Committee on Taxation report showing half the savings from repeal in 2019 would go to those with annual incomes of $1 million or more. Options include increasing the cap above $10,000 or repeal, which the Tax Foundation estimates would cost $673 billion over 10 years. Democrats have suggested increasing the top individual tax rate and statutory corporate income tax rate to pay for changes or repeal.

In an opening statement, Chairman Mike Thompson (D-CA) said although the direct benefits of the SALT deduction primarily fall to upper-income taxpayers, the deduction supports state and local government spending on public schools, infrastructure, first responders, and health care programs. Full Committee Chairman Richard Neal (D-MA) also spoke at the hearing regarding his concerns over the cap.

Subcommittee Ranking Member Adrian Smith (R-NE) also said the largest benefits of SALT repeal going to the highest earners, noted that the TCJA doubled the standard deduction, and said the SALT cap was "specifically designed to ensure a typical family earning up to $200,000 per year would be held harmless, as the average SALT deduction pre-TCJA for that group was in the $7,000 range."

Witnesses:

• David Tarter, Mayor, Falls Church, Virginia
• Bob De Natale, Mayor, Bayville, New York
• Christian Yancik Leinbach, Commissioner, Berks County, Pennsylvania
• Dr. Paul Imhoff, Superintendent, Upper Arlington School District
• Lt. Mahlon Mitchell, President, Professional Fire Fighters of Wisconsin
• Nicole Kaeding, Vice President of Federal and Special Projects, Tax Foundation

Witnesses generally supported repealing the SALT deduction limit, with many citing double taxation by states and the federal government. Only Kaeding advocated maintaining the cap, saying limiting the SALT deduction was a "step to finance broad tax reform and help maintain progressivity within the tax code." She argued that repealing the SALT cap financed by raising the corporate income tax rate would raise taxes on the bottom 90% of taxpayers, while cutting it for the top 10% of taxpayers.

Chairman Thompson said the deduction cap requires governments to make difficult choices about which services to fund and pressure to reduce budgets that affects first responders.

The JCT report said state and local taxes are used to fund a variety of services, with the largest portion, 28%, spent on education. Under questioning from Rep. Jimmy Panetta (D-CA), Imhoff confirmed that education is where a lot of the money goes and the deduction cap will mean that schools are asked to do more with less.

Committee Democrats also emphasized disparities in cost of living, suggesting that claims that the SALT deduction cap doesn't affect the middle class depends on the definition of middle class. Rep. Don Beyer (D-VA) used photos of homes in different parts of the country during the hearing to compare "what you get for the dollar depending on where you live." Rep. Tom Suozzi (D-NY) said the government should not divide states and penalize states based on cost of living, and suggested relief from the cap could be paid for by restoring the top individual tax rate and increasing the corporate tax rate to 25%.

Other members, including Rep. Linda Sanchez (D-CA), compared the corporate benefits of the TCJA to benefits for individuals, with corporations receiving a 14% permanent corporate tax cut. Rep. Bill Pascrell (D-NJ) highlighted his bill (H.R. 1142) to repeal the SALT limitation and restore the 39.6% top individual income tax rate bracket.

Rep. Lloyd Doggett (D-TX) emphasized the deficit concerns of some Democrats that were on display during a tax extenders markup June 20, saying Republican amendments offered to the extenders bill would have added even more to the national debt. Doggett noted that he voted against a separate Democratic proposal to expand the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) that he otherwise supported because it had no revenue offset. He said there are "many places to look at to pay for" relief from the cap, including the corporate tax rate and foreign outsourcing provisions, but, citing the recent JCT report showing half of the benefit of repeal going to millionaires, said Congress "shouldn't be rewarding people who already got rewarded."

The hearing was followed by a separate Members' Day hearing focused on the SALT deduction cap.

Testimony is here.

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