The Future of SALT Deduction Limitation: Will the New Congress Repeal the Limitation?
President Trump limited the state and local tax (SALT) deduction from federal taxes to a maximum of $10,000, which had a significant impact on many individuals in high-tax states. Is this limitation now going to be reversed? The short answer is, it's uncertain, and it has more to do with the legislative process and political reality than it does with the current president.
Understanding the Limitation
Contrary to popular belief, the limitation on the SALT deduction was not created solely by President Trump. The Tax Cuts and Jobs Act (TCJA) of 2017 was passed by Congress and signed into law by the president. This act significantly altered the tax landscape, including the reduction of the cap on state and local taxes from an unlimited amount to a maximum of $10,000. Similar to many other provisions of the TCJA, the SALT limitation is set to 'sunset' after 2025, meaning it will no longer be in effect unless Congress passes new legislation.
The recent election hasn't significantly altered the makeup or political alignment of Congress, so it is likely that the limitation will remain in place for at least another year. However, as the 2020 midterm elections approach, the political landscape could shift, potentially changing the likelihood of repeal.
Role of Congress
It is crucial to understand that the president does not have the authority to unilaterally change tax laws. The US Constitution grants Congress the power to make or amend tax laws. In the case of the SALT limitation, Congress passed the TCJA, which included the limitation. Unless a new law is passed by Congress, the limitation will remain in place.
Many people mistakenly believe that the president has vast powers over tax laws, often due to campaign promises and political rhetoric. In reality, the president's role is mainly advisory and ceremonial regarding the enforcement and implementation of tax laws. While the president can propose tax reforms and suggest budget plans, ultimate decision-making power rests with Congress.
Implications of the Limitation
The SALT limitation while nearly doubling the standard deduction amount means that wealthy individuals in high-tax blue states are effectively paying more in taxes to fund lower tax rates for working-class individuals. Many argue that reversing this policy could be detrimental to the economic stability of these states, particularly those with robust, highly taxed service industries.
It is the responsibility of the legislative branch, not the executive branch, to address issues related to the SALT limitation. If there is a push to repeal the limitation, it would need to be done through new legislation passed by Congress and signed by the president. Given the current political climate, the likelihood of such a change is uncertain.
Conclusion
While the recent election results have not significantly altered the political landscape of Congress, the potential for a legislative reversal of the SALT limitation exists. However, this change would require new legislation and the approval of Congress, not just the president. If the Senate remains under Republican control, as it does now, the likelihood of a repeal becomes even more remote.
The future of the SALT limitation remains uncertain, but it is clear that this issue is deeply rooted in the legislative process and political realities, rather than individual presidential actions.