Republicans could limit SALT impact in new tax legislation

[September 07, 2018]  By David Morgan

WASHINGTON (Reuters) - U.S. Republicans, aiming to get another round of tax legislation through the House of Representatives before the Nov. 6 elections, said on Thursday that they are considering ways to minimize political blowback from a new cap on federal deductions for state and local tax payments.

House Ways and Means Committee Chairman Kevin Brady expects to unveil "Tax Reform 2.0" legislation next week to make permanent the individual tax cuts contained in President Donald Trump's tax overhaul in December. It is also expected to expand savings opportunities for families and write-offs for start-up businesses.

But faced with a possible rout in November, House Republicans could avoid giving permanence to the state and local tax (SALT) reduction cap, a measure that has helped make re-election difficult for Republican incumbents in largely Democratic states including New York, New Jersey, Illinois and California.

Instead, lawmakers said the cap could be extended for as little as a year to make the legislation acceptable to vulnerable blue state Republicans, whose votes may be needed for passage.

"There could be an extension. I think it has to be finalized, but that's what they're ... discussing," said Representative Mark Walker of Alabama.

Representative Tom Reed, a New York Republican who sits on Brady's tax committee, said discussions about what to do with the SALT provision were "a work in progress."

"That's one of the major conversations," Reed told reporters. "There are obviously a lot of political concerns, a lot of substantive concerns."

Trump's tax overhaul, which became law last December, capped the SALT deduction at $10,000. The deduction was previously unlimited.

Chairman of the House Ways and Means Committee Kevin Brady (R-TX) holds up a sample tax form as he speaks during a media briefing after the House Republican conference on Capitol Hill in Washington, U.S., April 17, 2018. REUTERS/Joshua Roberts/File Photo

The move has hit taxpayers hard in high-tax states that lean Democratic, where Republicans now face more than a dozen competitive election races.

Four states have sued the federal government to overturn the provision, while the U.S. Treasury and Internal Revenue Service moved last month to prevent high-tax states from helping taxpayers circumvent the cap.

Representative John Faso of New York, whose own re-election bid is rated a tossup by analysts, said Republicans could still make the SALT deduction cap permanent if they got rid of a tax on high earners that Trump's overhaul only reduced.

"The elimination of the alternative minimum tax greatly lessens the capping of the SALT deduction," he told reporters.

It is not clear how a limited SALT deduction cap would impact the Republican goal of bringing permanence to $1.1 trillion of individual tax cuts, which are currently set to expire after 2025.

The cap was among a number of revenue raisers in last year's overhaul that the Joint Committee on Taxation said would generate nearly $670 billion over a decade to help pay for tax cuts.

(Additional reporting by Lisa Lambert; editing by David Gregorio, Chizu Nomiyama and Cynthia Osterman)

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