Gerry Goldberg’s clients have varying reactions to congressional efforts to remove the limit on deductions for state and local taxes that has been in place for several years.
Goldberg, CEO and co-founder of GYL Financial Synergies in West Hartford, Connecticut, works with investors in states with high income and property taxes, such as New York, New Jersey and his home base, as well as clients in states without an income tax, such as Florida.
His clients in the Northeast states “would like to see some sort of relief to the extent it’s possible,” he said. Those in Florida have a different attitude: “They say, ‘We’re just fine with the limitations in place.’”
The dichotomy of views is a window into the political challenges facing legislation that would remove the $10,000 SALT cap, which was implemented as part of the 2017 Tax Cut and Jobs Act to make up for the tax revenue lost by the bill’s long roster of tax reductions.
Ever since the bill was enacted, lawmakers from states with high taxes have been pushing to eliminate the cap. Rep. Josh Gottheimer, D-N.J., and a bipartisan group of co-sponsors introduced a bill earlier this year that would restore the full SALT deduction.
Proponents lifting the cap say it would provide a much-needed tax cut for residents of high-tax states. Opponents — and a recent study by the National Taxpayers Union Foundation — say the SALT deduction mostly benefits the wealthy and that the cap should remain in place.
Although Democrats from blue states have been leading the charge to lift the cap, a number of Republicans also support the move. The Wall Street Journal recently reported some GOP resistance to a House tax-reform bill until it includes a provision to eliminate the SALT cap.
Advisors say they hope Congress considers the burgeoning federal deficit as they wrestle with policy related to SALT deductions.
Goldberg said lawmakers should “heed the cautionary tale” revealed by the recent downgrade of U.S. debt by Fitch Ratings, which was based in part on the country’s growing debt burden.
“As much as I might want to see some relief for my clients and myself, there should be a balance between revenue and expenses in the federal budget,” Goldberg said. “In other words, if we get relief on this item, it will probably cost us someplace else.”
A similar admonition to keep an eye on the federal budget comes from Sam Huszczo, founder of SGH Wealth Management in Southfield, Michigan.
“This is a moment where we need to talk about raising taxes in the next few years rather than creating more tax breaks,” Huszczo said. “We need to come up with more revenue if the country is going to handle the debt service it has gotten into.”
Jon Ekoniak, managing partner at Bordeaux Wealth Advisors in Menlo Park, California, said most of his clients “came out roughly even” given the 2017 bill’s lowering of personal taxes combined with the SALT limitation. But he said clients miss their SALT deduction and want it back.
Gottheimer blamed “red state senators from moocher states” for blocking bills the House passed in previous Congresses to revive the SALT break.
“There is strong, bipartisan support for restoring the SALT deduction, which will put direct pressure on Republican leadership to listen to the millions of struggling middle-class families and take action to restore SALT and cut taxes,” Gottheimer, co-chair of the congressional SALT Caucus, said in a statement. He asserted that the SALT deduction “will get more dollars back in the pockets of millions of hard-working Jerey residents and families across the country.”
Huszczo said the issues boils down to red states versus blue states.
“This is just a state-to-state battle,” he said. “If New York and California win, the rest of us don’t. This is more a savvy political move than something that will help out a broad base of Americans.”
More than 40 states have provided a workaround on the SALT deduction, according to an analysis by the American Institute of Certified Public Accountants. In those states, owners of small businesses known as pass-through entities can deduct state and local taxes through their business taxes.
“There does seem like there is broad interest in making some sort of changes to the SALT deduction limitation because states are doing it on their own,” Ekoniak said. “Some of your hardest-core Republican states have adopted it as well as some of the Democratic-focused states.”