A bipartisan group of lawmakers led by Andrew Garbarino, R-N.Y., and including Young Kim, R-Calif., Josh Gottheimer, D-N.Y., and Anna G. Eshoo D-Calif., relaunched a SALT caucus on Wednesday, dedicating themselves to lifting the cap on the state and local tax deduction.

The SALT caucus wielded some power in the previous Congress, threatening to refuse to align on key votes unless the $10,000 cap on the deduction, implemented with the 2017 Tax Cuts and Jobs Act, was lifted. The issue is important to lawmakers in high-tax states, and is also important to municipal issuers in those places who have said the cap infringes on their financial sovereignty by limiting their ability to levy further taxes.

In a statement Garbarino said, “As tax day approaches, it marks another year of my constituents getting the short end of the stick because it’s another year that they’re not able to deduct the entirety of their state and local taxes.” 

The SALT deduction cap was originally sold by some as a closed loophole to penalize the rich, but the issue elicits mixed reactions on both sides of the aisle.

“We’ve done research, where it shows that SALT pressure isn’t isolated,” said Emily Brock, federal liaison for the Government Finance Officers Association. “It comes out in Austin, Texas, and Minneapolis, Minnesota.”     

Using SALT as a legislative bargaining chip has a long history. In 2019 the squabble pulled in the Treasury Department, and concerns from the housing industry. “No SALT no deal” became a rallying cry in 2021 as Democrats attempted to stop the Build Back Better reconciliation package from passing.  Both efforts failed and the cap stayed on SALT. 

In the meantime, many states and the Internal Revenue Service have developed their own financial tools to minimize SALT impact. “At least 20 states have created partial workarounds,” said Bill Glasgall, senior director for public finance at the Volcker Alliance. The workarounds enable small businesses to reimburse SALT impacted individuals through tax deductions or credits. 

The reality of the caucus pushing a new SALT change across the goal line inspires a certain amount of skepticism. “Are there really enough members of the House from high tax states who will get together?” said Glasgall. “They couldn’t get this knocked out when the Democrats controlled both houses.” 

President Biden’s familiar refrain of taxing the rich may not be a factor in rejiggering SALT as Glasgall points out that Biden is calling for an increase in the top tax rate for millionaires. Other experts note the clock may be running out for tinkering with the SALT deduction. 

“In isolation you could argue that raising or repealing the SALT cap doesn’t fit with the president’s aims to raise taxes on the wealthy,” said John Buhl, senior communications manager a the Urban Institute. “The cap is scheduled to go away entirely after 2025, having a cap higher than $10,000 would appear as a cost savings long-term. That’s more of a budget scoring gimmick.” 

Forward movement will be judged by what happens in the post caucus-forming stage.

“If there’s a hearing agenda for Ways and Means, that will tell you,” said Glasgall. “And if it makes it up to the subcommittee and the committee level.”

Brock believes the winds of bipartisanship combined with the need for more muni-based funding may carry the day. “The IIJA, the massive investment in infrastructure that was a bipartisan effort will require a strengthening of the underpinning method of financing infrastructure, which is the municipal market,” she said.

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