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State and local tax cap rollback included in year-end tax talks

Democrats leading SALT discussions say they hope to have legislation ready for markup in October

Rep. Bill Pascrell, D-N.J., and House Democrats are looking to roll back the cap on annual state and local tax deductions. (Tom Williams/CQ Roll Call file photo)
Rep. Bill Pascrell, D-N.J., and House Democrats are looking to roll back the cap on annual state and local tax deductions. (Tom Williams/CQ Roll Call file photo)

A senior House Ways and Means Democrat said Wednesday that a full, though temporary, elimination of the current $10,000 cap on annual state and local tax deductions is among the proposals being discussed for a possible markup in the coming weeks.

Committee Democrats also discussed in a Wednesday caucus meeting how a “SALT” rollback and a raft of other tax legislation the committee has advanced or will soon consider might fit into a deal later this year with Senate Republicans, and what offsets might be offered as part of any package, said Rep. Bill Pascrell Jr., D-New Jersey.

Both Pascrell and Rep. Mike Thompson, D-California, who is heading the SALT discussions, said Wednesday that they hoped to have legislation ready for a committee markup in October.

[Ways and Means to weigh rollback of state, local tax deduction cap]

“We’re getting closer I think,” said Thompson, who is chairman of the Select Revenue Measures Subcommittee, as he left the caucus meeting.

“I’d love to be able to mark up in October, but as I said, we’re working on it; so, it’s not yet soup,” he said.

Pascrell is the author of a bill to permanently eliminate the $10,000 cap, which was a key feature of the 2017 tax code overhaul. His plan was to partially pay for nixing the cap by raising the top marginal tax rate on individuals from 37 to 39.6 percent, which is where it was before the 2017 bill.

“You’re not going to get total repeal,” he said Wednesday. “It’s good that we started there and it will enter into our compromise somehow.”

Asked to elaborate, he said, “It may not be forever, it may simply be a three-year plan, a four-year plan.”

The committee has received cost estimates on a number of proposals being considered, he added. “In order to come to some compromise, you’ve got to get into some specifics.”

At previous meetings, Ways and Means Democrats have discussed other iterations of a SALT rollback as well as other provisions for inclusion in a tax bill. One such measure would provide relief from the Windfall Elimination Provision, a formula that reduces Social Security benefits for people receiving a retirement benefit from a job where Social Security payroll taxes aren’t paid, such as police and firefighters.

[SALT still rubs the Democrats’ tax wounds]

Omnibus tax bill?

Without giving details, Pascrell said panel members discussed what a possible year-end package containing a variety of tax provisions could look like, and what the offsets for such a package might be.

House Ways and Means Chairman Richard E. Neal, D-Massachusetts, met with Senate Finance Chairman Charles E. Grassley, R-Iowa, over the summer to discuss a tax package. Neal at the time said Grassley might be open to pieces of legislation approved in Ways and Means that would expand refundable tax credits for lower-income individuals, including the Earned Income Tax Credit.

Neal said Grassley appeared open to considering the portion of Neal’s bill that would expand the Earned Income Tax Credit for single filers, and that Grassley has “a couple” of things he’d like to see become law this year. Grassley confirmed the basics of that exchange Tuesday: “I would only act if my committee wanted to act on this, but I think some Republicans are open to the fact that the EITC could be expanded to people without children. But only in that area.”

Neal’s bill would double the current $529 maximum EITC for single filers, and increase the annual income threshold at which the tax credit begins to phase out from $8,650 to $11,310. The provisions would be in place for two years at a cost of $19 billion, according to a Joint Committee on Taxation estimate.

Sen. Tim Scott, a South Carolina Republican on the Finance Committee, says the issue hasn’t been discussed among committee members. “I’m not opposed to the issue, but I have not made a decision on it,” he said Wednesday.

Grassley has pushed throughout this year to renew more than two dozen tax breaks that expired at the end of 2017 and 2018, particularly a $1-a-gallon biodiesel tax credit which he has long championed. Grassley and other Republicans have also pushed for a technical corrections package that would roll back some of the unintended changes in the 2017 bill, perhaps most notably the “retail glitch,” which makes stores, offices and restaurants depreciate property improvements over 39 years rather than the intended 15 years.

While Grassley agreed that tax extenders and technical corrections would be on his wish list, he said: “I don’t want to make that statement. It sounds like I’m making a deal. I don’t negotiate in the press.”

Grassley’s interest in the biodiesel tax credit is well known, but there are a large number of senators who favor one or more of the tax extenders, said Sen. John Cornyn, R-Texas, another Finance member.

“There’s a lot of interest in tax extenders,” he said. But to bring a number of issues together, “it would be in the context of maybe a year-end effort,” Cornyn predicted.

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