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Capitol Hill Recap: House Puts Kibosh on SALT-Cap Increase

Jay Heflin
February 15, 2024
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Key Takeaways

  • Effort to up SALT-cap comes to an end with procedural vote.
  • Big Questions on when Senate will vote on House-approved tax bill.
  • IRS Chief testifies before House tax-writers.

The House blocked legislation upping the SALT-cap from a floor debate, likely ending efforts this year to increase the cap.

What Went Down:

  • Procedural vote likely puts the kibosh on upping SALT-cap.
  • Big Questions on when Senate will vote on House-approved tax bill.
  • IRS Chief testifies before House tax-writers.

Let’s Get To It:

House Lawmakers Swear-Off SALT

House lawmakers this week voted to block the chamber from debating legislation that would have increased the SALT-cap to $20,000 for joint filers earning less than $500,000. The increase would have only pertained to the 2023 tax year.

The House voted 195 to 225 to not accept a Rule that would have provided debate guidelines for the SALT bill. The rejection means the House will not vote on the bill or advance it to the Senate.

House lawmakers who spoke against the bill said it would largely benefit wealthier landowners who might not need the tax break. Research from the right-leaning American Enterprise Institute (AEI) supported their claim.

It’s report, titled “The Next Tax Fight: SALT” states the following:

H.R. 7160, the “SALT Marriage Penalty Elimination Act,” would raise the cap to $20,000 for married tax filers for the tax year 2023 if the taxpayers’ adjusted gross income is less than $500,000. In other words, this is another temporary and retroactive tax cut. What’s so bad about a tax cut for these nice taxpayers? Well, it’s both costly and bad economics. 

According to my calculations using AEI’s open-source Tax-Calculator, this bill would cost $12.5 billion, of which 87.9 percent would go to 7.3 million married taxpayers with incomes above $176,100 and 9.9 percent would go to 1.7 million married taxpayers with incomes from $113,600 to $176,100. 

Translation: The tax relief will overwhelmingly benefit wealthy landowners.

Legislative outlook: The demise of the bill will likely end efforts to modify SALT-cap this year.

Next year could be a different story. Lawmakers are expected to debate and possibly vote on legislation in 2025 that would extend the individual tax provisions from the 2017 tax reform bill that will expire next year.

If the SALT-cap enters this discussion, then it will likely be about extending the cap beyond 2025. The cost for extending tax breaks in the reform bill will be expensive and that cost will need to be offset. Enter: SALT-cap extension.

Senate Action on Tax Bill

It is not clear when the Senate will make floor time for the House-passed tax bill.

The House recently approved tax legislation that included:

  • R&D expensing for domestic costs
  • Expand the 163(j)-interest deduction from EBIT to EBITDA
  • Up Bonus Depreciation to 100%
  • Increase section 179 expensing
  • Increase the information reporting threshold for certain payments
  • Enlarge the Child Tax Credit
  • Modify the Employee Retention Credit

The Senate has basically four options for dealing with this bill:

  1. Bring to the floor as a stand-alone bill;
  2. Add it to legislation that the Senate will soon address;
  3. Allow the bill to be vetted by the Senate Finance Committee;
  4. Let the bill die. 

Hurdles exist for every option, mainly because passage will require bipartisan support.

Some Senate Republicans demand their support will be based on making changes to the bill. Some want to limit Child Tax Credit benefits. Others want to expand those benefits.

Senators also think the cost for tax breaks should not be offsets. And a few want modifications to the Employee Retention Tax Credit to be struck from the bill.

If enough Republican Senators oppose the bill, it will fail to pass the Senate.

Legislative outlook: It is not clear how the Senate will proceed with the tax bill. Senators are on recess and will not return until the week of February 26th. It is likely that details for how the upper chamber will handle the tax legislation will be made public after Senators return to D.C.

Upon Senators return, they will be staring down two funding deadline: March 1 and March 8. Lawmakers could add the House-passed tax bill to either of these funding bills, but it is not clear if they will do this.

IRS Chief Testifies:

IRS Commissioner Danny Werfel testified this week before the House Ways and Means Committee to update the panel on how the agency is handling its responsibilities.

House Ways and Means Chairman Jason Smith (R-Mo) started the hearing by asking Werfel if taxpayers would have to file an amended return if they had already filed their forms before the tax bill making its way through Congress is enacted into law. (Assuming it gets enacted into law, that is.)

Smith: “Can you confirm that taxpayers do not need to file amended returns to obtain the adjustments the bill makes?”

Werfel: “Yes.”

More information on the tax bill can be found here.

The tax bill is currently stalled in the Senate. Senators are on recess and return to Capitol Hill on February 26th. Upon their return, staffers are hoping to receive some guidance on when the chamber will take-up the tax bill.

Other IRS-related topics discussed during the Ways and Means hearing included:

  • Congratulating the agency on how it is handling the current tax season.
  • How the agency will implement tax bill that is making its way through Congress.
  • How the IRS will address concerns raised by the recent Inspector General report that show agency security is subpar.
  • Is the $80 billion being used more for customer service or enforcement? Lawmakers’ answers were largely partisan.
  • How was the IRS leaker able to leak so much information to publications? Again, partisan replies by lawmakers.
  • Hard questions (by one party) on why the IRS thought it could delay 1099 reporting requirements without congressional input. Those condemning the action also said that they support delaying the reporting rules.

Legislative outlook: The outcome of the upcoming election could have huge consequences for how the tax agency is funded. The level of funding will likely be a large factor in how the IRS meets its responsibilities.

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!

 

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About the Author(s)

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Jay Heflin

Director of Legislative Affairs
Jay brings more than two decades of experience to his job as Director of Tax Legislative Affairs in Eide Bailly’s Washington D.C. office. Jay provides political intelligence and guidance to the firm on the progress of tax legislation on Capitol Hill. Prior to joining the firm, he was a director at the tax lobbying shop Federal Policy Group, LLC, where he tracked tax legislation in Congress and participated in lobbying efforts to amend tax legislation. Before joining the Federal Policy Group, he was a Congressional reporter for several news organizations where his beat was tax policy.