Is the Cap on the SALT Deduction in Play ?

the staff of the Ridgewood blog

Ridgewood NJ, Biden promised he would repeal the $10,000 cap on the state and local tax (SALT) deduction but limit the tax benefit of all itemized deductions to 28 percent. Further, he would tax capital gains and dividends as ordinary income for taxpayers who report $1 million or more and tax capital gains at death, subject to certain exclusions.

Democrats, including Biden, are eager for a repeal of the SALT cap because they say it generally hits residents in “blue states” harder. States with Democrat-controlled legislatures and/or that reliably vote Democrat in presidential elections (often referred to as blue states) are more likely to fund various government services within the state through income and property taxes rather than through other means (although residents in some red states also fund their governments this way). The larger the state and local tax burden, the more valuable the SALT deduction used to be for those filing federal returns.

A Brookings Institute analysis of tax filing data suggests that 96% of the benefits of repealing the SALT cap would go to the top quintile of taxpayers. The report said the top 1% (by income) of filers would receive an increase in their average tax deduction of $33,100 compared with the middle 60%, who would increase their annual tax deduction an average of less than $27. With Biden’s other tax plans largely aimed at increasing taxes on the wealthy rather than reducing them, his support of repealing the SALT Cap is somewhat at odds with his other proposals, although it is also in line with the majority position within the Democratic party leadership.