The Senate is taking up the Treasury rule disallowing SALT deduction cap workarounds today. Overriding a regulation under the CRA is rare but not unprecedented, particularly recently. The resolution is privileged, meaning that it's expedited and gets a guaranteed floor vote. 1/
Suspending a regulation under the Congressional Review Act (CRA) requires a simple majority vote in both chambers and a presidential signature. At least one Democrat, Sen. Bennet (CO), is opposed to overturning the rule, which would almost exclusively benefit high earners. 2/
However, it's unclear whether all Senate Republicans support it. Some have expressed concern about the rule's effect on charitable organizations, though business contributions are not affected (no SALT cap there, treated as taxes paid). 3/
Here's a brief summary of how the Treasury rule operates and what it does. taxfoundation.org/irs-salt-worka… 4/
Here's our analysis of these workarounds, most notably the ones in NY and NJ that seek to recharacterize state tax payments as "charitable contributions" to the state. Spoiler warning: even before the Treasury rule, they really stood no chance. taxfoundation.org/state-strategi… 5/
And here's who would benefit from lifting the SALT cap, which, remember, was a pay-for within the TCJA that helped buy down rates, including for those who would benefit from the cap being lifted. taxfoundation.org/salt-deduction… 6/
Democratic support for overturning the rule is predicated on the idea that, if state tax liability is subsidized less than before, this will reduce the revenue capacity of high tax states whose high earners will no longer be shielded from the effects of those states' rates. 7/
This is a surprising admission, because it basically concedes that tax-based migration is real and significant, and concludes that it's only been muted because the federal government was making everyone else subsidize some of those states' burdens on high earners pre-cap. 8/
But, just like the more extreme claims of mass exoduses emanating from the right, these claims are overstated. It's a real effect and states SHOULD be concerned about the consequences of setting rates too high. But overstated. 9/
The Senate, presumably, is the real legislative hurdle, so today's vote will be interesting. And telling. /FIN
