Coronavirus-inspired SALT cap relief may incentivize more people to pay their taxes

Governors of states hardest hit by outbreak have begun asking lawmakers to lift the $10,000 cap on state, local tax deductions

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As high-tax states like New York and New Jersey deal with financial challenges that have arisen as a result of severe coronavirus outbreaks, one measure experts think could help alleviate their economic situations is modifying the $10,000 cap on state and local tax deductions.

New York Gov. Andrew Cuomo has said repealing the cap is logical because it would help the states most affected by coronavirus. New Jersey Gov. Phil Murphy said it would be a form of middle-class stimulus.

George W. Bush Chief of Staff Andy Card told FOX Business’ Neil Cavuto on Thursday that the federal government should revisit the measure, which was implemented as part of the 2017 Tax Cuts and Jobs Act.

“I want the federal government to have more sympathy for some of the challenges that states will have in trying to pay this debt,” Card said. “I think they should take a look at the state and local tax deductions again, and states may need some relief from that and we want to give people more incentive to pay their taxes by making sure they can deduct it on their federal income taxes.”

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Ensuring people pay their taxes will be important as coronavirus wreaks havoc on New York’s budget.

The New York City Independent Budget Office has predicted the budget shortfall for fiscal years 2020 and 2021 will come in at $9.7 billion as the city loses massive amounts of tax revenues.

Beyond those near-term concerns, alleviating pressure from the SALT cap could reduce longer-term damage, too.

As previously reported by FOX Business, experts foresee a fresh exodus of residents from higher-tax states like New York and New Jersey, where the coronavirus outbreak has been particularly severe. Many people with second homes or vacation homes have taken shelter there, and as the health care concerns caused by the pandemic pile onto existing tax frustrations, they may choose to stay permanently.

“A lot of people are like ‘I’m here anyway I might as well give it a go,’” Timothy Noonan, state and local tax expert and partner at Hodgson Russ, told FOX Business. “Easing the SALT limitation would go a long way to keep folks living in these states.”

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Noonan has personally received multiple inquiries from clients about changing their domicile from New York to Florida during the coronavirus outbreak. The strategy is even more feasible for some taxpayers who may have gone to their vacation homes at the outset of the winter and have been unable to return – now racking up nearly enough days in Florida to make a case for a residency change.

Prior to the implementation of the $10,000 cap, the average deduction claimed by New York residents was more than $20,000.

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Last year, Cuomo credited the SALT cap for contributing to a $2.3 billion budget deficit in the state as wealthy taxpayers left.

The Empire State lost $9.6 billion in 2018 alone as wealthy individuals and businesses moved out.

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