By Victor Reklaitis
As some Democratic lawmakers from high-tax states keep pushing for their party’s $3.5 trillion spending plan to include what’s been called SALT relief, one stumbling block has been the cost of such relief.
But Washington may end up with a solution — using a new reporting rule for banks to cover the cost of easing a $10,000 cap on deductions from federal income tax for state and local taxes that was put in place by Republicans’ 2017 tax-code overhaul .
“We detect growing interest in using revenue from increased bank tax reporting to offset expanding the amount of state and local taxes (SALT) that homeowners may deduct,” Cowen Washington Research Group analyst Jaret Seiberg said in a note on Wednesday.
“It is too early to say with certainty if this gets enacted as part of the package. But it seems like the type of deal that Congress cuts when putting these packages together. It is why we see a real risk that it is included,” Seiberg added.
The possible new rule for banks related to tax reporting would require that the institutions tell the Internal Revenue Service about customers’ annual inflows and outflows for accounts with as little as $600 in them. Biden administration officials have advocated repeatedly for stricter requirements, saying a change could lead to more people actually paying taxes as required and bring in as much as $460 billion in revenue over 10 years.
But after opposition from banks /zigman2/quotes/201006419/composite KBE +0.20% and other lobbying groups, House Democrats kept such a rule out of their proposed tax-policy changes this week, though a scaled-back version still could emerge from ongoing talks between administration officials and Congress, said a Wall Street Journal report on Wednesday.
Any revenue generated from a bank-reporting measure could help pay for a SALT fix, said a Bloomberg report .
“We believe the idea would be to raise the maximum SALT deduction to $50,000, from $10,000,” Cowen’s Seiberg said.
“We suspect many voters in coastal communities will welcome a higher SALT deduction cap. Yet it likely only further inflates home values, which is why we see only a limited benefit to housing /zigman2/quotes/203278229/composite HOMZ -0.10% as limited supply already is resulting in higher prices,” the analyst added.
This report was first published on Sept. 16, 2021.