WASHINGTON – Treasury Secretary Janet Yellen repeatedly declined to give a clear government position on state and local tax deductions during a House hearing, leaving an issue open to tense negotiations among Democrats over the President’s fiscal agenda Biden will be.
Under pressure from Democrats and Republicans in the House of Representatives on Thursday to take a position, Ms. Yellen would not say whether the Biden administration is in favor of lifting the $ 10,000 cap on the withdrawal. Removing this limit would lower taxes for high-income households and disproportionately benefit residents of high-tax democracies like New York, New Jersey, and California.
Mr Biden’s budget is silent on the deduction cap that was created in the Tax Act 2017 and is due to expire after 2025, along with many other provisions of that Act.
“He recognizes that this is a huge problem in a number of states and wants to work with Congress to see if there is a way to mitigate the damage it has caused,” Ms. Yellen said during a committee hearing for ways and means through the president. “But he made no proposal in the budget.”
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Rep. Kevin Brady (R., Texas), the committee’s top Republican, urged Ms. Yellen whether Biden would support the abolition of the cap if lawmakers included it in a compromise infrastructure package. “I’m not going to negotiate here on behalf of the President,” she said.
The fate of the trigger can be crucial in getting the Biden agenda through the house. Some lawmakers, including Rep. Tom Suozzi, NY, and Bill Pascrell, D., NJ, are pushing for the cap to be lifted as part of changing tax legislation. The Democrats have a slim majority in the House of Representatives, and just a few defectors could jeopardize a tax law.
But some progressives are against repeal because so much of the benefits go to the top tier of the household. According to the Tax Policy Center, a project by the Urban Institute and the Brookings Institution, about half of the benefits of a waiver would go to households making more than $ 1 million.
Taxation situation
Additional WSJ articles on State and Local Tax Deduction, selected by the editor
Some lawmakers have proposed raising the ceiling instead of removing it. This move would benefit many upper-middle-class households in high-cost areas. But it wouldn’t address another concern of state officials – the notion that the lack of a deduction would make it difficult for them to collect taxes on high-income households. With the cap, state income taxes come in addition to federal income taxes, creating a greater incentive for people to save taxes by moving to Florida, Texas, or elsewhere with no income tax.
“Maybe we won’t get the full relief. I know that, ”Mr Pascrell said to Ms. Yellen during the hearing. “But the government’s silence on this worries my constituents.”
Republicans set the cap in 2017 to pay tax cuts for individuals, including lower rates, bigger child tax credits for individuals, and tightening the alternative minimum tax that hits higher-income households in the same states. Most households – even in high-tax countries – pay less tax than they did before the 2017 law.
Write to Richard Rubin at richard.rubin@wsj.com and Kate Davidson at kate.davidson@wsj.com
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