The Senate on Tuesday rejected a Democratic bid to overturn Internal Revenue Service (IRS) regulations prohibiting states from creating charitable funds that taxpayers can contribute to in exchange for a state tax credit.
The workaround gave taxpayers in high-tax states like New York, New Jersey and California a way to get around the $10,000 cap on state and local tax deductions passed as part of the 2017 Tax Cuts and Jobs Act (TCJA). To address the workaround, the IRS issued rules stating that taxpayers can only claim a charitable deduction for donation amounts that exceed the amount of state tax credits they received.
Senate Minority Leader Chuck Schumer (D-NY) said the SALT deduction cap unfairly penalizes taxpayers in New York and other states that pay high property taxes.
Republicans said Democrats are trying to create state-sanctioned tax shelters for wealthy residents.
“Rather than acknowledging that the sky hasn’t fallen, our Democratic friends still want to undermine tax reform,” said Senate Majority Leader Mitch McConnell (R-KY). “Listen to this: Democrats’ first target is changing the tax code so that working families across the country have to subsidize wealthy people in states like New York, New Jersey and California.”
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