Future of SALT on the table post-election

As the election looms, tax specialists and politicos are gaming out what might happen to key provisions of the Tax Cuts and Jobs Act, including the deduction cap on state and local taxes.

"There's an interesting set of bedfellows and partnerships that could emerge on SALT," said Arshi Siddiqui, a partner at Akin, and a Democratic strategist.

"You have a lot of members on the progressive side who wouldn't be supportive of eliminating it, so you could see a coalition there. But if there is a smart political campaign behind the SALT, I think that we could see that significantly change."

The comments came from a pair of tax panel discussions on Monday hosted by the Tax Policy Center, Urban Institute & Brookings Institution.

The contentious and much-debated SALT cap deduction is touted as a strong revenue tool for the federal government while bond issuers believe it infringes on their sovereign ability to levy future taxes.

According to the Treasury Department, the current budget deficit is $1.8 trillion, a number that will continue to grow as the next Congress takes over and begins looking for ways to pay down the national debt.

Many experts see keeping the SALT cap in place to pay for other programs, especially if neither party nets an election sweep of the White House, Senate, and House of Representatives.

"If you're a divided government that brings a whole lot more political pressures to solve that (SALT) issue," said Sage Eastman, Partner, Mehlman Consulting, and Republican strategist.

"We've seen the political pressures the Trump administration clearly felt in terms of trying to address that. I'd be surprised if SALT stays the way it is today, but I wouldn't wager a lot of money."

Both experts believe a temporary extension of the TCJA is a safe bet and the debate may begin with how big the deficit is allowed to be.

"You could claim that number is zero, where the traditional scoring might say it's in the trillions, multiple trillions of dollars," said Eastman.

"I don't know yet where Congress is settled. I don't even think Republicans are settled on a number, let alone the two parties. I feel like Dems are a lot closer to zero than we are, but we're not $5 trillion either, so there's a lot of room there for the two parties to come together."

Muni leaders remain concerned that proposed revenue raising concepts include eliminating the tax exemption for municipal bonds. In addition to the SALT cap, pay-fors in the TCJA also included the elimination of advance refunding on tax exempt bonds.

Jason Smith, Chairman of the House Ways and Means Committee, has already declared that the cap will remain in place assuming Republicans remain in control, but that it could be adjusted up from its current limit of $10,000. He also believes the "marriage penalty" could be eliminated, as the cap currently applies equally to single and joint filers.

The first panel of the day focused on the future of corporate and individual tax rates, pass-through income deductions, the child tax credit, the earned income tax credit and international tax laws.

The two economists on the panel agreed that the TCJA did not boost revenue streams into the federal government and took turns bashing a rise in tariffs as an effective way to cut the deficit.