House Democrats push for repeal of rule blocking SALT restriction bypass

Rep. Tom Suozzi, D.N.Y., speaks at a press conference for the State and Local Tax Collection (SALT) outside the U.S. Capitol on April 15, 2021.

Sara Silbiger | Bloomberg | Getty Images

Three-house Democrats are still pushing for a reduction in the $10,000 cap on the federal deduction for state and local taxes, known as SALT.

Representatives Josh Gotteimer, DN.J.; Tom Suozzi, D.N.Y.; and Miki Cheryl, DN.J., on Friday sent a joint letter to U.S. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig to repeal the 2019 rule blocking the SALT state aid bypass.

Introduced by the Tax Cuts and Jobs Act of 2017, the SALT cap spurred laws in Connecticut, New Jersey, and New York that allowed residents to bypass the cap. These statewide laws allowed local charities to offer property tax credits to homeowners who contributed.

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However, the Treasury and the IRS blocked the strategy in 2019, saying that receiving a SALT loan in exchange for charitable donations would constitute a quid pro quo.

“As Americans grapple with rising costs and sustained economic disruption caused by the Covid-19 pandemic, we urge you to take immediate action to support nonprofit charities,” the lawmakers wrote.

“Thirty-three states offer tax credits that encourage charitable giving to certain causes, and this rule unnecessarily limits the ability of states to incentivize charitable giving to nonprofits,” they said.

The letter was released after five House Democrats, including Gottheimer, Cheryl and Suozzi, asked the House Subcommittee on Appropriations on Financial Services and Public Administration to withhold IRS funding to stop SALT restriction workarounds at the state.

Given the narrow majority of Democrats in the House of Representatives, the SALT cap has become a stumbling block in negotiations to rebuild better. Although House Democrats in November passed an $80,000 SALT cap through 2030 as part of their spending package, Senator Joe Manchin, DW.Va., stopped the plan in the Senate.

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