Thompson Opening Statement at Select Revenue Measures Subcommittee Hearing on How Recent Limitations to the SALT Deduction Harm Communities, Schools, First Responders, and Housing Values

Jun 25, 2019
Press Release
(As prepared for delivery)
I’d like to welcome everyone to today’s hearing on how the recently-enacted cap on the State and Local Tax Deduction is affecting communities, schools, first responders, and housing values.
The cap on the SALT deduction was one of the most divisive and controversial provisions arising from the deeply flawed and sloppy Tax Cuts and Jobs Act.  
The process that brought us the tax law – written behind closed doors and hastily passed a mere 51 days after its introduction – cut corners and skipped important fact-finding hearings like this one.  
State and local government leaders and community members were silenced in 2017 and have been forced to deal with the fallout of the SALT cap since then. Today’s hearing should have taken place two years ago. 
But it didn’t. And so it falls to us today to hear from state and local government leaders, education experts, and first responders about how the SALT cap is affecting their communities, their work, and their decision-making.
The SALT cap raises a host of issues that deserved to be fully explored:
First, the cap questions the concept of Federalism that underpins our government.  In the U.S., we have a system in which critical public services and responsibilities are allocated among federal, state, and local government. The federal government doesn’t aim to meet all of society’s needs, and its taxing capacity is significant. For a century, our federal income tax has recognized this threat and has used the SALT deduction to provide flexibility to state and local governments.
Second, the SALT cap enacts a massive marriage penalty.  The $10,000 cap applies per tax filer, whether a single individual or two married taxpayers filing jointly. If an unmarried couple owned a home together, they would each be eligible to deduct $10,000 in state and local taxes; if they marry, their deduction would be slashed in half.
Third, the SALT cap creates disincentives for homeownership and charitable giving. The 2017 tax law increased the standard deduction to $12,000 for a single filer, and $24,000 for a couple. The increased standard deduction plus the $10,000 SALT cap means that a married couple would need $14,000 in mortgage interest, charitable donations, or other itemized deductions for itemizing to be worthwhile. As millions more families switch over to the standard deduction, they will lose most of the tax incentives for homeownership and charitable contributions. And we all know that homeownership is a crucial way for middle class families to build wealth. Furthermore, charities are extremely concerned about the potential future impact on giving.
Fourth, although the direct benefits of the SALT deduction primarily fall to upper-income taxpayers, the deduction supports state and local government budgets, whose expenditures support programs with widely-shared benefits, like public schools, infrastructure, first responders, and health care programs. And as states try to balance their budgets with less revenue, local leaders likely will make cuts in these programs.  Concerns about the distributional effect of the SALT cap certainly didn’t apply when Republicans were looking at other tax deductions, and can be alleviated by adjusting tax rates, not uprooting a century-old, bedrock aspect of public finance in this country.
Finally, the SALT Cap punishes high cost of living areas. We heard a lot of talk in this committee about the sins of state and local governments that will be pinched by the SALT cap. The charge was made repeatedly that these states and localities were somehow “profligate.” I beg to differ. The cost of living varies so tremendously from one corner of this nation to another that the comparison is truly apples to oranges. Every school district in America employs kindergarten teachers, and every law enforcement agency in the country pays police officers. 
And they need to be able to pay rent or a mortgage, wherever they live. It’s not reasonable to expect to pay a teacher in New York what a teacher in Mississippi earns—the gross income of the average Mississippi teacher is about the same as the median price of rent in New York. You can’t pay them the same amount.
I’m pleased that today’s panel is a bipartisan one, with elected leaders from across the political spectrum. Thank you for taking the time away from your heavy responsibilities elsewhere to help us better understand this issue.
And with that I will recognize the Ranking Member, Mr. Smith of Nebraska for an opening statement.