Dem chairman releases unredacted version of report on SALT deduction cap

House Ways and Means Committee Chairman Richard Neal (D-Mass.) on Wednesday released an unredacted version of a report relating to the GOP tax law’s cap on the state and local tax (SALT) deduction, after the report was released Tuesday with much of its contents kept hidden from the public.

The unredacted version of the report from the Treasury Inspector General for Tax Administration (TIGTA) provides information about how the Treasury Department and IRS developed a notice issued in May 2018 announcing an intention to propose regulations on state workarounds to the SALT deduction cap.

The tax law President Trump signed in December 2017 caps the SALT deduction at $10,000. The cap has been one of the most controversial parts of the law, with politicians in high-tax, Democratic-leaning states such as New York, New Jersey and California arguing that it punishes their constituents.

After some states started considering and passing legislation aimed at circumventing the SALT deduction cap, the IRS issued a notice in May 2018 saying that it planned to issue proposed rules about the workarounds. Treasury and the IRS later issued proposed rules taking aim at the SALT deduction-cap workarounds in August.

Last year, Neal had requested that TIGTA review the May IRS notice. He wanted TIGTA to look at whether there was any political influence in the process of developing the notice.

In response to Neal’s request, TIGTA released a report on Tuesday. The version that TIGTA released to the public contained the watchdog’s estimate that about 10.9 million taxpayers will be affected by the SALT cap, and it said that the process reviewing and approving the IRS’s notice was “reasonable.” But that version redacted most of the other information in the report.

Neal released the unredacted version of the TIGTA report on Wednesday, after The New York Times reported, citing a TIGTA spokesperson, that Treasury and IRS officials originally wanted the report to be completely private and then pushed for the redactions.

But TIGTA told The Hill Wednesday that it determines what information to redact from its reports, not the IRS. A spokesperson for the agency said that following discussions with the IRS, TIGTA decided to redact portions of the report that contained “IRS pre‑decisional and deliberative material.”

In the unredacted version of the report, TIGTA said that the IRS started working on guidance on the SALT deduction cap in January 2018, and that the IRS chief counsel’s office made the issue a priority because several states had started to consider workarounds to the cap and the cap would take effect for the 2019 tax-filing season. 

The IRS had initially started to draft a press release informing the public that regulations on SALT-cap workarounds were forthcoming, and IRS and Treasury officials later decided to disseminate that information in a notice instead because “it is more authoritative than a press release,” TIGTA said. The notice was reviewed by a number of senior Treasury officials, including Treasury Secretary Steven Mnuchin.

“It appears that the reviews and approvals performed by Chief Counsel and the Treasury were appropriate given the need to notify the public about the potential impact of the SALT limitations,” TIGTA said in the unredacted report.

Neal told reporters Wednesday that he didn’t think he hurt his relationship with Mnuchin by releasing the unredacted report.

“I think my relationship with the secretary is sound,” Neal said, adding that Mnuchin is expected to testify before the Ways and Means Committee in the next couple of weeks. Mnuchin is expected to testify next month after President Trump releases his fiscal 2020 budget proposal.