A Trump-era tax law could get a last-minute overhaul, increasing refunds for millions by $10,000 this tax year.
The proposed legislation would double the cap on the state and local tax deduction – known as SALT – from $10,000 to $20,000 for married couples.
If the bill — sponsored by Rep. Michael Lawler, a Republican from New York — is implemented, the break would apply to the 2023 tax year.
The bill is currently being considered in the House of Representatives and would need to pass the Senate, where opinions on the SALT provision are mixed.
Congress capped the deduction at $10,000 for both individuals and married couples after former President Trump made sweeping changes to the tax landscape in 2017.
Rep. Mike Lawler, R-N.Y. has proposed legislation that would double the cap on state and local tax deductions
Before there was a cap on the SALT deduction, taxpayers could deduct their state and local taxes from their federal taxes – which some politicians said primarily benefited wealthy Americans in high-tax states like California and New York.
However, others argue that the $10,000 cap is a marriage penalty because the same dollar amount applies to both single and married taxpayers.
Many tax breaks, including the standard deduction, are higher for married couples who file jointly because their tax returns can reflect the income of two people.
The law change would apply to married couples filing jointly and whose income is less than $500,000.
If the law goes into effect, it would mean eligible Americans could double their refund for the current tax filing season, which begins Jan. 29 and ends April 15.
The increase would apply only to the 2023 tax year and then revert back to $10,000 by the end of 2025.
Unless extended as part of Trump's Tax Cuts and Jobs Act, the provisions will expire on January 1, 2026 and will bring major changes to millions of taxpayers across the United States.
Congress capped the deduction at $10,000 for both individuals and married couples after former President Trump made sweeping changes to the tax landscape in 2017
“This is a family-friendly tax measure that rights a wrong, and this is ultimately about justice,” Rep. Mike Lawler, R-N.Y., said in a committee hearing last week.
“We must finish the work and quickly pass this in the Senate and send it to the President's desk – hard-working middle-class families across our country deserve this critical relief,” he added in a statement.
But the nonpartisan Tax Foundation found that the vast majority of those who would benefit from doubling the cap would be wealthy Americans with incomes of more than $200,000.
Even at $10,000, the cap is still taken primarily by higher earners who have enough other deductions to make them worth itemizing rather than taking the standard deduction.
The majority of Americans take the standard deduction, which increased to $13,850 for single filers and $27,700 for married joint filers in 2023.
“The SALT cap adjustment only benefits taxpayers who elect to itemize their deductions and pay more than $10,000 in state and local income or sales and property taxes,” the think tank said in a statement .
It is estimated that the change would cost about $11.7 billion in lost federal tax revenue.
If the proposed change were extended through 2024 and 2025, it would cost an additional $25.5 billion over those two years, the think tank predicts.
The proposed plan would apply only to the 2023 tax year and the cap would then revert back to $10,000 by the end of 2025
By comparison, the SALT deduction cost the federal government $69 billion in tax revenue in 2017, the year before the $10,000 limit was implemented, according to a report from the nonpartisan Peter G. Peterson Foundation.
While many argue that it is a tax on the rich, some Democrats say the SALT deduction cap also hits middle-income families who live in states with high property and income taxes.
“The cap on the SALT deduction remains a tough blow to our home states of New York and New Jersey as we work to recover from the pandemic and put our economies on solid footing and get our voters back to work.” Democrats Tom Suozzi of New York and Josh Gottheimer and Mikie Sherrill of New Jersey told CBS.
This comes after the House of Representatives passed another tax bill to expand the child tax credit earlier this month.
The bipartisan measure, which still needs to be passed by the Senate, could lift hundreds of thousands of children out of poverty.
The bill received bipartisan support. In addition to help for parents, it also includes tax breaks for businesses, which helped it gain Republican support.