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State tax deduction cap in Tax Reform 2.0 could affect Hawaii homeowners

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WASHINGTON, D.C. -

House Republicans moved one step closer Thursday to advancing what they call Tax Reform 2.0. But Democrats on the committee tasked with reviewing the plan are fighting back against one of its key provisions: a cap on state tax deductions at the federal level.

If you live in a high-tax state such as New York or Hawaii, you may be familiar with the “SALT” deduction. That allows someone to write-off their property taxes, and either state income or sales tax when they file federally. But last year when President Trump signed the Tax Cuts and Jobs Act, SALT deductions were capped at $10,000. House Democrats are now claiming that may be unconstitutional because leftover money essentially would be taxed twice under Tax Reform 2.0.

“This bill doubles down on the double tax,” said Congressman Bill Pascrell, a New Jersey Democrat whose state would be heavily impacted by the cap.

“Redo this in a bipartisan manner with hearings,” said Ways & Means Committee Ranking Member Richard Neal (D-Mass.)

Prior to the new tax laws, there wasn’t a cap on those deductions. According to WalletHub, New York residents face the highest combined state tax burden nationwide at a combined 13 percent; followed by Hawaii at 11 percent, and a slew of New England states helping to round out the top ten.

But New York Congressman Tom Reed (R-Corning), doesn’t see his constituents being affected if that cap becomes permanent.

 “With a $10,000 cap, 99 percent of folks in our district are not going to be impacted by that,” Reed said following the morning markup.

Still, some blue-state Republicans this week have spoken against the SALT cap, meaning the GOP’s plan could face an uphill battle.

 “There’s still a debate,” Reed said, noting the cap isn’t totally off the table. “I think there are many of us from SALT states that are open to that type of reform.”

Tax Reform 2.0 could also raise the federal deficit by more than $600 billion, according to the Joint Committee on Taxation.

It’s unclear if the Senate will vote on the package of legislation before Election Day.

Also, on Capitol Hill Thursday, in what was an expected move, the Senate Judiciary Committee delayed a vote on Supreme Court nominee Brett Kavanaugh. That is now scheduled for Sept. 20. A full Senate vote is still scheduled by the end of the month.

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