Don’t Add SALT to the Tax Deal
According to press reports, the House is considering new tax cuts and changes to follow the Committee-passed tax agreement that would expand the Child Tax Credit (CTC) and revive business tax breaks. In particular, lawmakers are discussing voting on plans to weaken the $10,000 state and local tax (SALT) deduction cap – possibly by doubling it to $20,000 for couples – and restricting availability of the CTC to cases where both the parent and child have a Social Security Number (SSN).
As we’ve written many times before, weakening the SALT cap is costly, regressive, and bad overall tax policy. This is true even of supposedly “targeted” SALT cap changes. Doubling the SALT cap for married couples, partially offset by requiring a parent and child SSN for the CTC, would likely cost about $10 billion per year on net. More expansive SALT relief could lose far more.
The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:
After all the hard work to try to offset this tax package, it would be foolish to throw fiscal responsibility out the window a week later to expand a tax break that almost everyone understands is costly, regressive, and counter to good tax policy.
We were very encouraged when Congress decided to make sure their new tax agreement didn’t add to the debt; this needs to be the standard for all tax and spending bills.
Increasing the SALT deduction cap alongside this deal without an adequate offset would mean abandoning this principle and would weaken the tax code in the process.
The SALT cap was a central element of the Tax Cuts and Jobs Act. Tax experts from across the political spectrum agree that it’s been instrumental in promoting tax simplicity and helping to finance other tax cuts and reforms.
Without the full SALT cap, the TCJA would have added even more to the deficit and its extension will be even more costly.
Weakening the SALT cap would worsen tax complexity and expand the deficit at a time when debt is already headed toward record levels as a share of the economy.
Although it is fully offset on paper, the Wyden-Smith tax package may already set the stage for hundreds of billions of future tax cuts. The last thing Congress should be considering is adding more deficit-financed tax cuts on top of it.
Given the size of our deficits and debt, Congress probably shouldn’t be making any major changes to the tax code outside of a plan to address our debt and reform the tax code. Congress certainly shouldn’t be making big fiscal policy changes before it’s even passed a budget.
And without a doubt, Congress shouldn’t pass costly and inefficient tax cuts and add the cost to the national credit card. The national debt is already far too high.