Discussions about the state and local tax deduction (SALT) are back. One reason? Lawmakers are prepping major tax reform since Republicans control the White House, and both chambers of Congress and President Trump reportedly would like to see adjustments to the SALT cap in 2025 tax reform to preserve Trump's tax cuts.
- The SALT deduction allows taxpayers who itemize to deduct state and local taxes from their federal taxable income.
- The deduction was capped at $10,000 by the Tax Cuts and Jobs Act (TCJA), ushered in by Donald Trump in his first stint as president.
- Since then, the SALT cap has been a point of contention for many in high-tax states who argue the deduction limit disproportionately affects them.
But it’s important to note that the state and local tax deduction isn’t just an issue for people in so-called “blue states.” And now, several Republican lawmakers have said they won’t support 2025 tax reform that doesn’t lift or eliminate the cap, while others are reportedly considering doubling the current SALT write-off.
Here’s what all this could mean for you and your tax bill.
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SALT deduction: Key points
The SALT cap was originally introduced to offset tax cuts in the TCJA, signed into law during Trump's first term in 2017. However, the $10,000 cap has faced criticism for placing an undue burden on residents of states with higher taxes, which tend to lean Democratic.
However, the dynamics surrounding the SALT deduction cap are complex, particularly when it comes to how some Republican lawmakers see its impacts.
- The SALT cap is often seen as penalizing residents in "blue states" with high state and local taxes. Data show California, Illinois, New Jersey, New York, and Pennsylvania account for most SALT deduction claims. (However, Texas, a "red state," is included in that data set.)
- For example, before the SALT cap, the average SALT deduction in Connecticut was around $20,900 according to the National Association of Realtors. Just after the $10,000 limit was enacted, the average SALT deduction in CT dropped to about $9,700. So, some Connecticut taxpayers saw a nearly 58% deduction decrease.
- However, some Republicans representing those states have become vocal about the need to raise or eliminate the cap. The urgency is heightened because the SALT deduction limit is set to expire at the end of 2025, if Congress doesn't act.
The cost of a SALT cap repeal (more on that below) and questions surrounding who benefits most (Tax Policy Center says high-income earners) are also key issues to be addressed in 2025.
GOP stance on SALT cap: Will "No SALT, No Deal" hold?
Rep. Mike Lawler (R-N.Y.) emerged as a key figure in this debate late last year. During an appearance on Bloomberg’s "Balance of Power," Lawler stated he wouldn’t support any tax proposal that doesn’t include the removal of the SALT cap.
He emphasized that his backing and support from other representatives from New York, New Jersey, and California are essential for passing tax legislation. Lawler remarked, "I’ve been very clear. I will not endorse a tax proposal that does not remove the cap on SALT."
It’s also worth noting that Rep. Tom Suozzi (D-N.Y.), also known as "Mr. SALT," has been a prominent advocate for the restoration of the SALT Deduction for some time.
His mantra, "No SALT, no deal," became a rallying cry among some lawmakers from high-tax states.
Suozzi has consistently said he would oppose any tax legislation that doesn't address the SALT cap, arguing that it represents "double taxation" and is a significant financial burden for Long Island and Queens residents.
What's happening with the SALT Cap?
Former President Donald Trump has also weighed in. As Kiplinger reported, Trump called for lifting the SALT cap during his 2024 presidential campaign events, stating an intention to "get SALT back."
At the time, those comments brought mixed reactions. Some viewed it as a necessary pivot for constituents in high-tax states, while others criticized him for previously supporting the very legislation that imposed the cap.
For example, Senate Minority Leader Chuck Schumer (D-N.Y.) has long opposed the SALT cap and criticized Trump’s campaign comments as politically motivated. Other Democratic representatives also expressed skepticism about Trump's sincerity in addressing an issue he previously exacerbated.
Since then, lawmakers have met with Trump several times to discuss the SALT cap, and Trump recently affirmed that some adjustment to the SALT cap is a priority in what he hopes will be one big reconciliation bill addressing tax, border security, and more.
Cost of repealing or modifying the SALT cap
What about the cost? Eliminating the SALT cap could cost an estimated $1.2 trillion over ten years, according to the Committee for a Responsible Budget. That price tag raises concerns among some fiscal conservatives about federal revenue and deficit reduction.
So, this underscores another key issue in the upcoming debate over tax reform: fiscal responsibility. The Congressional Budget Office (CBO) has estimated that just making the TCJA permanent (a big item on Trump’s tax wish list) could cost more $4 trillion over ten years.
Potential changes to the SALT deduction
As negotiations and positioning begin in Congress regarding potential new tax legislation, it remains to be seen whether raising or repealing the SALT cap will be part of any final product.
Several options to deal with the SALT deduction beyond full reinstatement (like a possible deduction cap increase to $20,000) are floating around with varied projected budget impacts. For example, some proposals involve:
- Make the current $10,000 cap permanent but double it to $20,000 for married couples
- Increasing the cap to $15,000 for individuals and $30,000 for married couples
- Restructuring the deduction to eliminate the income and sales tax components, allowing only property taxes to be deducted without a cap
As discussions continue, the outcome remains uncertain. However, any changes to the SALT deduction could impact taxpayers nationwide, particularly those in states with higher tax burdens, so keep an eye on tax changes involving this and other key deductions.
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