Council in the News
There is a new push in Congress to eliminate or alter a tax policy that disproportionately hurts residents of Massachusetts and other expensive states.
Support from Bay State lawmakers has not exactly been deafening.
In 2017, the Republican-controlled Congress put a $10,000 cap on how much federal tax filers can deduct for the state and local taxes (or SALT) they pay each year. (There had previously been no limit.) The cap was meant to offset some of the GOP’s massive tax cuts that year. It was no coincidence that many people who exceed the $10,000 threshold live in Democratic strongholds, where incomes and taxes are on the high end.
The 2017 tax cuts are set to expire at year’s end, as is the SALT cap. President Donald Trump has prioritized the extension of the cuts, and negotiations have been underway for months. Democrats and Republicans from California, New York, New Jersey and Illinois have lined up behind a bill to end the SALT cap. Those are the four states that would benefit most from the cap’s elimination, according to a 2021 research report.
At No. 5, Massachusetts is next on that list. But no member of the Bay State’s congressional delegation has signed on as a co-sponsor.
SALT politics are messy. A repeal eats into federal revenue and benefits wealthy homeowners most, not exactly progressive priorities. At the same time, the cap was created during the first Trump administration as a way to pay for tax cuts on the backs of blue-state residents, and its elimination would reduce tax bills — at no cost to state revenue — at a time when business leaders warn the commonwealth’s economic competitiveness is under threat.
Of Massachusetts’ nine House representatives and two senators in Washington, each of them a Democrat, only one responded to the Business Journal’s request for information on their SALT stance. Rep. Bill Keating, whose district includes the South Shore and the Cape and Islands, said in a statement that the cap “is as inequitable of a tax policy as you can get.
“Hardworking families in states that have local higher taxes are being penalized because their states value and fund safety, education, and so many other civic necessities,” Keating said. “The SALT deduction cap is unfair, plain and simple, and it needs to be removed from the backs of our families and small businesses.”
While she does not get a vote, Massachusetts Gov. Maura Healey also indicated she would like the cap gone.
“Gov. Healey supports eliminating the SALT cap because it is yet another example of President Trump making life more expensive for people, and it unfairly hurts Massachusetts residents and businesses,” spokesperson Karissa Hand said in an email.
While the other representatives did not respond to the inquiries, their past statements offer insight into how at least some of them have thought about the issue.
For instance, Rep. Richard Neal endorsed addressing the cap in a WCVB interview last year. Back in 2019, Rep. Lori Trahan supported an ultimately unsuccessful effort to scrap the SALT cap for the next two years. Keating also signed a letter in support of that effort.
On the other hand, Sen. Elizabeth Warren was skeptical of a proposed cap fix in 2021, though she was open to one if paired with a new tax on billionaires.
“I didn’t come here to help billionaires cut their taxes,” Warren said then, according to Bloomberg. “I want to see what it does for the billionaires. I’m not here to help those guys.”
While the SALT cap unquestionably costs wealthier people more money, tax data suggests it affects Massachusetts residents at a range of incomes. In 2022, the average property-tax and income-tax deductions for those making between $100,000 and $200,000 a year added up to $14,405, according to an analysis by the Tufts University Center for State Policy Analysis. The same figure was a tad above $10,000 for taxpayers with $75,000 to $100,000 in income.
“Taxes are quite high in a lot of towns in Massachusetts, so even if you don’t make $200,000 a year, your property taxes may be over $10,000 in a year,” said Dan Ryan, a tax attorney in the law firm Sullivan’s Boston office.
Since the cap was put in place in 2017, property-tax bills have only increased for Massachusetts residents, given the steep rise in real estate values amid the housing shortage. The Massachusetts Legislature in 2021 did enact a workaround that reduces the effect of the SALT cap, but only for owners of pass-through businesses.
As ever, the calculus on SALT is complicated. There seems to be momentum around raising the cap, rather than eliminating it, but a lot can change during the negotiations. Trump called for restoring the deduction during the campaign last year. At the same time, the tax cuts could add trillions of dollars to the deficit, something at least some Republicans say is important to avoid. Keeping the cap would help limit the deficit. Pioneer Institute fellow Andrew Mikula echoed one argument when he told the Business Journal that “it’s hard to see why Washington should want to reward people who choose to live in high-tax states.”
Ultimately, Democrats in Washington may not have much say on the upcoming tax package, given Republican control in D.C. But their support, or lack of support, for changing the SALT cap still matters, said Christopher Anderson, president of the business-backed Massachusetts High Technology Council.
“The barriers to exiting high-cost states like Massachusetts are lower than ever,” Anderson said. “If (lawmakers) are sensitive to the outflow of taxable income from Massachusetts, they should be very focused on this as an easy solve.”