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How the S.A.L.T. deduction debate could derail infrastructure reform

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Posted at 3:24 PM, May 14, 2021
and last updated 2021-05-15 00:54:35-04

ORLANDO — Let's talk about salt. No, not what you put on food.

The S.A.L.T. debate in Washington is about state and local tax deductions and whether Americans should be able to deduct unlimited state and local taxes on their federal tax return.

Why it matters

Former President Donald Trump's signature tax law in 2017 made a change to the amount of state and local taxes that can be deducted from a federal tax return.

Prior to 2017, it was an unlimited amount. After 2017, it was capped at $10,000.

People on the move

During the last year, thousands of Americans decided to leave the state in which they were living and move somewhere else. No state has perhaps benefited more than Florida.

"It’s absolutely insane right now," Natalie Arrowsmith, a realtor in Central Florida, said about the housing market.

Arrowsmith says many of her clients are coming from New York and California, citing the benefits of new work from home perks.

For instance, with the $10,000 cap on deductions in place, there is now an incentive to live in a lower-taxed state where your local taxes aren't as high. Florida has no income tax.

"Compared to where they are in other states, that’s a huge attraction," Arrowsmith said.

One such person is Erin Sykes, a realtor herself in the Palm Beach area. Sykes is still keeping her business in New York, but her primary residence is now Florida.

"In my situation, I am definitely keeping more of my money by being a Florida resident," Sykes said.

S.A.L.T. debate in Congress

The debate over whether state and local taxes should be eligible for unlimited deductions is a part of the massive infrastructure debate.

Rep. Tom Suozzi (D-NY) said he will vote against the president's proposal unless the tax code is changed. Suozzi believes people are leaving his state for places like Florida because of it.

Other Democrats who support changing the tax code include Speaker of the House Nancy Pelosi and Senator Chuck Schumer, who represent California and New York, respectively.

Unlike Suozzi, Pelosi and Schumer are unlikely to hold up the infrastructure package if the measure does not make it into the final bill. Changing it will be difficult, however. Many progressives have actually sided with conservatives on the issue.

Senator Bernie Sander (D-VT) and Rep. Alexandria Ocasio-Cortez (D-NY) have said they are opposed to changing the tax code because it would benefit the wealthy who have high taxes to pay.

All of this must be factored into negotiations over infrastructure reform that continue in Washington, D.C.