In what some see as an effort to keep the House majority, and others see as a method to keep the American tax code competitive, Republicans announced the next phase of the tax reform proposal to the public. Yesterday, they noted that the SALT cap is included in the upcoming vote, which has been divisive along both party lines. The second phase would also make permanent the individual tax cuts which, at this point, are set to expire in 2025.
What Is the SALT Cap?
SALT stands for state and local income tax. What previously was an unlimited deduction for state and local income taxes (including property!) would now have a permanent $10,000 cap starting this year. Further, the cap remains the same whether you file singly or jointly, so some have noted that this cap penalizes married couples.
Why Is the Cap Divisive?
Each party is in a bind with this cap. Democrats are in the position of voting either against making the individual tax cuts permanent or voting against their party and for the GOP Tax Reform 2.0, which would extraordinarily expand the deficit. Republicans, especially in high-tax states would either vote for the SALT cap (effectively raising the taxes of many of their constituents) or against their party. With no clear win for either side and the chance that Senate Republicans will take up the measure being doubtful at best, the move is seen as primarily a way to stir up the forecasted voter turnout at the polls this November.
How Does This Affect US Expats?
Though many expats are not required to pay state taxes, those who previously resided in “sticky states” may be. For those expats who still have ties to their previous state residences, the tax burden may increase if this measure passes when it comes to a vote later this month.
Unfortunately, there’s been no sign of including a simplification of reporting requirements for expats in this phase of the tax reform.