Congressman Mike Garcia, R-Santa Clarita, introduced his first piece of legislation to the House of Representatives, the State and Local Tax (SALT) Fairness Act, which would remove the State and Local Tax deduction cap created in the Tax Cuts and Jobs Act of 2017.
Taxpayers who itemize deductions on their federal income tax returns are allowed to deduct state and local real estate and personal property taxes, as well as either income taxes or general sales taxes.
The Tax Cuts and Jobs Act of 2017 (TCJA) instituted a $10,000 cap on state and local tax deductions, which Garcia’s SALT Fairness Act, known formally as House Resolution (H.R.) 202, seeks to repeal.
“While I am a strong proponent of cutting taxes, the simple fact is we can’t wait any longer to act. The Tax Cuts and Jobs Act of 2017 made progress in many ways, but the cap it put on SALT deductions was not one of them,” wrote Garcia in a statement. “The fact is, Californians are being unfairly punished by this $10,000 cap on SALT deductions. California’s high state and local tax rates combined with this cap are taking their toll on hardworking men and women.”
The cap established by the TCJA is set to expire in 2025 under the terms of that legislation, Garcia’s H.R. 202 seeks to hasten its end.
The Tax Policy Center, a joint venture by the Brookings Institute and the Urban Institute offering independent analyses of current and longer-term tax issues, published a report which outlines the impact of SALT deductions.
Their analysis affirms that those in California that have previously claimed the deduction are disproportionately affected compared to other states, as California has a higher share of taxpayers claiming the deduction and average a higher deduction than more rural states.
“Although some taxpayers in every state and DC claim the deduction, taxpayers in states with a disproportionate share of high-income taxpayers and relatively high state and local taxes are more likely to claim the deduction,” the report reads.
Prior to the passage of the TCJA in 2017, roughly 30 percent of tax filers opted to itemize deductions on their federal income tax returns and virtually all who itemized claimed a deduction for state and local taxes paid, according to the report.
“High-income households were more likely than low- or moderate-income households to benefit from the SALT deduction,” reads the report.
(Chart courtesy of The Tax Policy Center)
The study found that tax filers with incomes above $100,000 accounted for 18 percent of all tax filers, but accounted for about 78 percent of the total dollar amount of SALT deductions reported with an average claim of $22,000.
“While this bill would greatly help Californians by removing the SALT deduction cap, I will continue to advocate for needed tax cuts,” wrote Garcia. “I am happy and willing to work with anyone from any political party to deliver tax relief for my constituents, and I will continue fighting for residents of CA-25 to be able to keep more of their hard-earned money.”
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