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Treasury Secretary Yellen Pledges to Address SALT Cap Inequities in North Jersey Under Questioning by Rep. Gottheimer

A review of the elimination of the State and Local Tax (SALT) deduction is needed according to a key member of President Joe Biden’s Economic team.

Under questioning by Rep. Josh Gottheimer (NJ-5), U.S. Treasury Secretary Janet Yellen stated “the SALT cap…resulted in very disparate treatment. There are a lot of options that have been presented and I would work with you to try to ensure that the inequities that this caused are remedied in a fair and responsible way.” 

The statement was made during testimony Secretary Yellen gave to the House Financial Services Committee hearing March 23 about addressing the need to reinstate the SALT deduction as well as efforts combat tax fraudsters who avoid paying the IRS causing an annual $600 billion tax gap.

Republican Tax Bill

In 2017, the Republican-controlled Congress passed a bill signed into law by then president Donald Trump that raised taxes for a majority of 5th District families due to it capping the SALT deduction at $10,000. 

According to Gottheimer, all four counties in the 5th District had an average SALT claim above the $10,000 cap—the deduction was $12,588 in Warren County, $14,267 in Sussex County, $14,714 in Passaic County, and $24,783 in Bergen County. 

 “Our taxes need to be cut in New Jersey, not raised, as we recover from COVID-19, and removing the SALT cap has broad bipartisan support,” stated the Congressman. 

Work with Gottheimer

Secretary Yellen promised she would work with Gottheimer through the various proposals currently being debated in Washington to try to ensure the inequities caused by the cap are remedied in a fair and responsible way. 

“President Biden discussed a proposal that would cap itemized deductions at 28%,” commented Yellen. “The caps could be increased. I think we need to study just what impact it has had and I look forward to working with you to find a fair way to address it.”

The exchange with Yellen was preceded by Gottheimer’s appearance before the House Ways and Means Committee to make the case for the reinstatement of the SALT deduction that was first established in 1913.

“Four years ago, a double taxation grenade was lobbed at New Jersey and other high-tax states by the Moocher States in the partisan 2017 Tax Hike Bill,” said the North Jersey Congressman. “The Red States made out like bandits and got a bunch of tax relief for themselves—and we in Jersey paid the price for it with federal tax hikes.” 

Bipartisan Support

Gottheimer noted removing the SALT cap has broad bipartisan support, as the House has already passed the SALT cap repeal three times, including as part of two previous coronavirus relief packages in May and October of last year. 

“It’s time for both sides to work together—Democrats and Republicans—to get this done,” he said. “It’s just common sense. Working together, we can reinstate SALT, cut taxes, and give a tax break to our hardworking, middle-class families, helping more Jersey residents recover economically from this pandemic.”

Recently, Gottheimer lead the introduction of the SALT Deductibility Act—with over 100 cosponsors from both sides of the aisle—to allow taxpayers to fully deduct their state and local taxes on their federal income returns.

“It’s clear: removing the SALT cap has broad bipartisan support,” he said. 

Focus on Tax Cheats

Besides the SALT tax, Gottheimer inquired with Secretary Yellen on the efforts the Treasury Department will make to close the difference between what taxpayers should pay to the IRS and what they actually pay on time, due to tax fraudsters and cheats underreporting and concealing income. 

“It’s a great opportunity to make sure we go after tax cheats or people who don’t pay what they should, to avoid raising taxes otherwise,” he said

Secretary Yellen said she was “fully supportive” of prioritizing revenue raisers that don’t require tax rates to increase. But such a move to help close the tax gap would need to be done in conjunction with increasing the audit capabilities of the IRS.  

“I think this is something that would be both fair and not involve any increase in tax rates or burdens,” stated the Secretary. “It does require more resources for the IRS. I’d like to work with Congress to see if we can provide that funding because I think this would be a very important initiative.”

One comment

  1. Or, New Jersey and other high tax States could cut their citizens’ taxes by cutting tax-supported costs, particularly the rampant costs associated waste, fraud and abuse in state and local government. Then New Jersey residents would have the double benefit of lower taxes and a more efficient, lower cost government.

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