Dems lose vote to repeal SALT workaround regs

Tax Hot Topics newsletter The Senate voted against legislation to overturn recent IRS regulations that shut down state charitable programs designed to circumvent the limitation on the state and local tax (SALT) deduction.

The joint resolution (S.J. Res. 50) under the Congressional Review Act (CRA) only needs a simple majority to rescind regulations, but failed largely along party lines. Sens. Rand Paul (R-Ky.) and Michael Bennet (D-Colo.) swapped places across the aisle, leaving Democrats unable to net a single one of the eight Republican votes needed to repeal the SALT deduction regulations. Four Democrats, three of whom are running for president, did not vote.

Democrats have been vocal critics of the $10,000 cap on the itemized deduction for state and local taxes enacted by the Tax Cuts and Jobs Act, which they believe has a disparate impact on high-tax states.

Several of those states responded to the limitation by passing laws that established charitable funds for state services that taxpayers can contribute to in exchange for state tax credits. But the IRS effectively put an end to those workarounds by issuing final regulations that require taxpayers to reduce their charitable deduction by the amount of state tax and local credits received in return.

Under the CRA, Congress can invalidate federal regulations within 60 legislative days of publication in the Federal Register if both the House and Senate pass a joint resolution of disapproval. The measure is veto-proof, and once approved, the issuing agency is permanently barred from promulgating new, “substantially similar” rules.

The House would have likely voted to overturn the SALT deduction workaround rules if the joint resolution passed the Senate. Its own companion legislation (H.J. Res. 72) has 53 co-sponsors and may have even garnered some Republican support if it got a floor vote.

House Democrats are also attempting to coalesce around a legislation to raise or repeal the cap, but if the latest vote provides any indication, it could face an uphill battle in the Senate.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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