The House voted Thursday 218 to 206 to suspend the $10,000 federal limit on deducting state and local taxes for two years while permanently raising the top individual tax rate to 39.6%.
The legislation, which would make tax-exempt municipal bonds more attractive for high income income retail customers, has no chance of becoming law.
A Republican amendment to the bill that was overwhelmingly approved 388 to 36 just prior to final passage would keep the $10,000 cap for households with adjusted gross incomes of more than $100 million.
House Democrats touted the bill Thursday for additionally increasing the above-the-line deduction for classroom expenses to $500 from the current $250 and for creating a new $500 deduction for first responders.
The Republican amendment uses the revenue from the SALT cap on households with incomes over $100 million to double that tax deduction for teachers and first responders to $1,000.
Even with that amendment, the Republican majority in the Senate won’t consider the legislation because it would significantly alter a key part of the GOP-passed Tax Cuts and Jobs Act of 2017.
In addition, the White House Office of Management and Budget has issued a veto threat if the bill ever makes its way as far as President Trump’s desk.
The ranking Republican on the tax-policy writing Ways and Means Committee, Rep. Kevin Brady of Texas, criticized the bill as “a starter pistol’’ for local governments to raise local taxes even more.
Brady noted that two liberal think tanks that he rarely agrees with — the Center for American Progress and the Center on Budget and Policy Priorities — have labeled the bill as a tax cut for the rich.
“You think your local property taxes are high now?” asked Brady during the floor debate. “This legislation is a starter pistol for a new race among state and local leaders” on who will be the first to raise taxes.
State and local government groups have, in fact, joined in support of repeal of the $10,000 cap because it constrains their ability to raise new revenue. The repeal is supported by groups such as the U.S. Conference of Mayors, the National League of Cities, National Association of Counties, International Association of Fire Fighters and the National Association of Police Officers.
Rep. Adrian Smith, R-Neb., described the bill as an effort to give Ebenezer Scrooge a tax cut before Christmas.
“If you make between zero and $75,000 a year, you do not get a tax cut,” Smith said. “If you make between $75,000 and $200,000 there is a small chance you could get a small tax cut. If you make between $200,000 per year and $1 million per year, you have the best chance of getting a tax cut.”
However, Republican critics of the bill are not being “dishonest” in calculating its overall impact because they are not including the impact of the higher 39.6% tax rate on the wealthy, said Rep. Bill Pascrell, D-N.J.
“We pay for it by increasing the personal income tax from where it was before,” Pascrell said. “Have you subtracted that, from what you are getting back?”
One of the few Republican supporters of the bill, Rep. Peter King of New York, defended his state as a high tax state that serves as a donor state to the federal government.
“One of the reasons why cities like New York and counties like Nassau and Suffolk had to raise their property taxes is because for 50 years we’ve been subsidizing your states,” King said. “All those years where you have been able to develop using our money, we had to raise local taxes.”
King said his constituents who are affected by the cap include cops, firefighters and the people who answered the call on 9/11.
“We have subsidized you long enough,” King said.
The impact of the SALT cap has been the greatest in high income, high tax states where many residents pay substantial property taxes and income taxes.
New York, New Jersey, Connecticut and Maryland — which are four of those states — are appealing a September ruling by U.S. District Court Judge J. Paul Oetken in Manhattan upheld the constitutionality of limiting the deduction.