NYS candidates want to repeal SALT cap, but it's hard to do, analysts say

ALBANY — A federal tax law provision that capped deductions for state and local taxes has become a heated political issue in New York State this election season. But the campaign rhetoric by both Democrats and Republicans promising relief belies the complexity of the issue and what, if anything, will be done, political analysts said.

The cap is part of the Tax Cuts and Jobs Act enacted in 2017 by a Republican-controlled Congress and signed into law by then-President Donald Trump. The cap limited taxpayers’ long-standing ability to deduct state and local taxes — referred to as SALT — from their federal income tax liability.

A Newsday analysis this month found that many Long Island taxpayers didn't see as much of a savings from the tax overhaul as those in most other states, and some have ended up paying more to the government because of the SALT cap. Under the cap, taxpayers can deduct no more than $10,000 in those taxes. And that has hit taxpayers with high incomes and high property values particularly hard in states such as New York, New Jersey and California.

Now, seven years later, some suburban Republican congressional candidates have joined Democrats in publicly vowing to end the SALT cap. Many of these suburban districts have become increasingly competitive for the Tuesday election and could determine control of the U.S. House.

Although the SALT cap is due to expire next year, whether it sunsets or is extended is uncertain regardless of which party gains control of Congress and the White House. That's because while many Republican members representing suburban districts in New York oppose the SALT cap, the provision is protected by Republicans in GOP-dominated states largely because of the tax revenue derived from the cap.

There's a similar division among Democrats. Many New York Democrats want to repeal the SALT cap, calling it "double taxation," but some progressive Democrats want to amend it to target the wealthiest taxpayers.

"The SALT deduction cap has strong advocates and detractors that cross party lines," said Garrett Watson, a senior policy analyst at the nonpartisan Tax Foundation, based in Washington, D.C. "A major trade-off of making the SALT cap more generous or allowing it to expire after 2025 is that it’s a revenue raiser for the other tax cuts that Republicans wish to extend in full."

Watson said the Tax Foundation estimates that extending the SALT cap beyond 2025 would raise about $979 billion over 10 years.

One possible compromise would be to extend the SALT cap, but make it incremental to allow joint filers to deduct double the current $10,000 cap.

"However, this depends on the push-and-pull between advocates who want to rely on the cap as a revenue raiser and detractors who would greatly prefer the entire cap expire as scheduled," Watson told Newsday.

Ken Girardin, research director at the Empire Center for Public Policy, a conservative-leaning think tank based in Albany, said, "There’s political benefit in telling voters they’ve been uniquely victimized by some complicated tax provision and New York’s political class does just that."

He said if Long Islanders and other New Yorkers hadn’t tolerated high taxes, the cap on deductibility wouldn’t be such as issue.

"This isn't to say there aren't good reasons for restoring SALT deductibility, but we rarely hear a principled case for it so much as we have congressional candidates who want to ‘do something’ about high property taxes without actually reducing government spending," Girardin said.

The impact of New Yorkers sending billions of dollars more in income taxes to Washington is significant.

In 2022, the Rockefeller Institute of Government, a state think tank for public policy, found the SALT cap costs New York taxpayers $12.3 billion a year in additional federal taxes. That prompts another loss of about $3 billion in spending in the state’s economy that cost more than 100,000 jobs, the institute concluded.

But the tax act also helped many who weren't strongly impacted by the cap on SALT by reducing tax rates, boosting the child tax credit aimed at cutting taxes for families and doubling the standard deduction.

On Tuesday, former Vice President Mike Pence said he knows the SALT cap is a burden to many on Long Island and will continue to be a big political issue, but he defended the provision.

"I thought the $10,000 cap was well placed," Pence said at the Long Island Association fall luncheon. He said the full federal tax deduction meant taxpayers in other parts of the country subsidized New York’s high state and local taxes.

One of the leading Republicans in Congress seeking to change the SALT cap and restore full deductibility has been Andrew Garbarino (R-Bayport), who calls the SALT cap "double taxation." He couldn’t, however, gain the support of his own party’s leadership.

Garbarino's Democratic opponent, entrepreneur Rob Lubin, of Lindenhurst, said his goal is also to repeal the SALT cap,  "something we lost under the Trump administration" which Garbarino couldn't fix, Lubin said.

Other Democrats, including Sen. Bernie Sanders (I-Vermont), a democratic socialist, also said changes should be made to the cap to ease the burden on middle-class families, while continuing to cap deductions for wealthier filers.

In this fall’s campaigns, Trump said, without providing details, that he would "get SALT back, lower taxes and so much more" by altering the cap he helped create. He made the statement just before he attended a rally at Nassau Coliseum last month, near the heart of Long Island where many individual taxpayers were hit hard by the cap.

His Democratic opponent, Vice President Kamala Harris, hasn’t issued a specific position on the SALT cap. She said her "opportunity economy" will focus on easing the tax burden on the middle class through tax credits for workers in lower-paying jobs, middle-class families, first-time homebuyers and a promise not to raise taxes on people earning up to $400,000.

"A cynic might argue that, at this stage, candidates may say now whatever is necessary to secure votes to win," said Ted Peterson, a professor at the University of North Texas who researches tax policy.

Peterson said he sees a strong chance of revising or eliminating the SALT cap, or letting the cap sunset from a lack of action by Congress or lack of agreement with whoever wins the White House and Congress.

Recent attempts in Congress to alter or repeal the SALT cap have failed to gain support in the highly partisan House and Senate.

In February, Garbarino, Reps. Anthony D’Esposito (R-Island Park) and Nick LaLota (R-Amityville) sought to suspend a House rule to advance their proposal to double the cap to include state and local taxes up to $20,000 for married couples making less than $500,000 a year. It was rejected.

A month before, the Long Island lawmakers and other New York Republicans pushed unsuccessfully for inclusion of the SALT relief measure in a bipartisan tax plan that passed the House in January.

"Some Republicans were hoping this would go away, but they represent competitive suburban districts," said Joshua McCabe, an assistant professor of sociology at Endicott College in Massachusetts who researches tax and social policy. He said seven years under the SALT cap has also "forced a lot of Democratic members to think about how they value the SALT deduction."

That makes compromise even more difficult in these polarized political times.

"It’s one of those unusual issues politically where both parties have the same position, yet are using it to attack the other," said Lawrence Levy, executive dean of Hofstra University's National Center for Suburban Studies. "It’s a complicated issue with countervailing forces that play differently to different audiences.

"Whoever wins election and whatever party is in power is not going to have an easy sell because it affects a lot of constituents in different ways," Levy said. "It’s hard to come up with a consensus ... it really is a phenomena." 

Since the beginning of SALT, Rep. Tom Suozzi (D-Glen Cove) has sought to repeal the measure, and his bipartisan bills were passed in the House three times. But they were blocked by Republicans in the Senate. 

Suozzi’s opponent, Republican Michael LiPetri, of Farmingdale, is also campaigning on a promise to end the SALT cap.

Now, Suozzi said he’s building an effort that could withstand whichever party is in control after the elections.

"We need to build a national coalition, which I’m working on currently," Suozzi told Newsday. "That includes mayors and other elected officials impacted by this as well as teachers and firefighters and members of Congress.

"I know the majority of Republicans are vociferously opposed to restoring the SALT deductions, and while a large number of Democrats are in favor, there is a vocal minority that don’t want it to happen," Suozzi added. "The only way it will happen is through a bipartisan coalition and that’s going to take work ... and, yes, I think it’s possible."

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.