Rep. Josh Gottheimer (NJ-5) is continuing his fight to eliminate a $10,000 federal cap on the State and Local Tax (SALT) deduction, recently rolling out a plan to move forward.
On April 19, Gottheimer unveiled a proposal that would enable Congress to pass a “robust, bipartisan infrastructure investment package” that does away with the Trump-era tax cap.
President Joe Biden’s $2.25 trillion infrastructure bill, Gottheimer believes, is an opportunity to provide long-sought after tax relief for 5th District residents.
‘There Is A Way To Do This’
Repealing the SALT cap could be paid for by increased Internal Revenue Service (IRS) audits, according to Gottheimer—making sure that tax cheats pay their fair share could fund parts of Biden’s infrastructure package as well.
The congressman’s proposal to pay for doing away with the cap targets the tax gap, which IRS Commissioner Chuck Retting said could be as high as $1 trillion per year.
Gottheimer is co-sponsoring the Stop CHEATERS Act, which seeks to invest in tax enforcement as a way to generate $1.2 trillion in revenue for the federal government.
“We need the administration’s support and increased investment for enforceability for our current tax laws and help close this massive tax gap,” he said. “In other words, there is a way to do this by actually going after what people owe already.”
Keeping Residents in New Jersey
The $10,000 cap on state and local tax deductions that went into effect in 2017 when former President Donald Trump signed into law the Congressional Republican tax bill has hit certain states with high costs of living and taxes the hardest.
After the previously unlimited century-old write-off was capped, many Garden State residents were left with higher federal tax bills while wealthy individuals and corporations were handed tax breaks.
“In each of the counties I represent, on average, taxes went up, not down,” Gottheimer said. “Middle class families in Sussex, Warren, Bergen and Passaic counties are now paying anywhere from $2,500 to $14,000 more in taxes.”
“In a state where taxes were already too high, gutting SALT had a real impact. People are moving out—in fact, according to United Van Lines, we are now the number one out-migration state in the country three years running,” he said.
Many of those residents and businesses leaving New Jersey “frequently cite the dilapidated infrastructure and transportation system and the SALT deduction cap for driving factors in their decision,” according to the congressman.
Continuing The Fight
Gottheimer, who has spent the last four years fighting the cap, is the founding co-chair of a new bipartisan group of House members, the SALT Caucus, that launched earlier this month.
Many Democrats, as well as Republicans from states such as California and Illinois, are strongly opposed to the cap, saying it harms their residents and makes it harder for their states to provide robust services. Caucus members have stated they will not support any infrastructure plan that does not include a removal of the SALT cap.
However, the Biden administration has been hesitant to support a repeal and tasked those looking to reinstate the full reduction with finding a way to pay for it.
According to a recent CNBC report, during the first year the cap was instated, the federal government brought in $77.4 billion from the measure. If it was taken away, it would cost $88.7 billion in 2021 and more in the following years.
‘Critical’ For NJ’s Future
“Repealing the SALT cap and investing in infrastructure is critical to the future of New Jersey middle-class families and small businesses,” Gottheimer wrote in an April 21 letter to Treasury Secretary Janet Yellen.
“There is a cost for infrastructure investments and in eliminating the SALT cap, but there is a solution readily available,” he wrote. “Shrinking the tax gap would not only fund the full return of the SALT deduction to the hardworking families of New Jersey, but it would also provide substantial resources for infrastructure spending and encourage long-term tax compliance.
“All of this could be accomplished without raising rates on families or complexity in the tax system, and not risk jeopardizing our economic recovery as we work to get through the COVID-19 pandemic,” Gottheimer concluded.