Raw: [Letting the SALT cap slip further upwards would undercut the TCJA’s long-term legacy, worsening the fiscal outlook of the tax package and providing an unneeded benefit to higher earners.]
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As policymakers consider potential federal taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
policy changes in the “big, beautiful bill,” a major point of debate continues over the state and local tax (SALT) deduction limit. Policymakers should avoid making the SALT cap more generous as the package is finalized in the House.
The SALT deduction has seen significant changes since 2017. That year, the Tax Cuts and Jobs Act (TCJA) limited the deductible total of state and local taxes to $10,000 for tax years 2018 through 2025 to help offset some of the cost of the tax cuts. Taxpayers who itemize may deduct state and local taxes, such as state income or sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.
plus state and local property taxes, against federal taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.
up to that $10,000 limit.
Additionally, the TCJA doubled the standard deduction, reducing the number of itemizers from about a third of taxpayers to about 9 percent.
The SALT deduction cap is scheduled to expire along with the TCJA’s other individual tax changes at the end of this year.
The SALT deduction cap had different impacts on taxpayers across the US, reflecting differences in state and local taxes and costs of living. Higher-income taxpayers in high-tax locations are most impacted by the SALT cap. Any changes to lift the cap would primarily benefit higher earners and make the tax code more regressive.
The House bill could have made the existing deduction cap permanent. The $10,000 cap would raise $981 billion over 10 years to help offset the cost of other tax cuts, while mostly impacting the top 20 percent of earners (see Table 1 below).
In the spirit of compromise, the tax plan raises the SALT cap to $30,000 for most taxpayers and creates new income limits for those earning over $400,000, providing a $175 billion tax cut over 10 years compared to the current cap, raising $807 billion over 10 years. This design would provide a full SALT deduction for well over 90 percent of taxpayers in the most impacted areas of the country, while also making permanent the other TCJA tax cuts.
Some policymakers are proposing an even bigger SALT deduction, perhaps to upward of $62,000 for single filers and $124,000 for joint filers.
There are several problems with this demand. First, the revenue math does not work.
Take the proposal to raise the cap to $62,000 for single filers and $124,000 for joint filers. With no other limits, this proposal would cost over $700 billion on its own compared to an extension of the existing cap, and $275 billion compared to the $30,000 cap currently in the tax package, raising only $219 billion over 10 years on a conventional basis.
The bill is already suffering from a math problem, as the tax cuts add up to over $4 trillion, and spending cuts have been pared back. This is a recipe for worsening deficits at a time when Congress needs to be more concerned about the country’s fiscal outlook.
Second, beyond the fiscal impact, the SALT caucus—a group of House members demanding a more generous SALT deduction—has framed the debate as a fairness issue. But that neglects some inconvenient facts. First, taxpayers with limited SALT deductions often couldn’t deduct that same SALT prior to the TCJA because of the stricter alternative minimum tax (AMT).
Most taxpayers also saw a net tax cut from the TCJA, even when accounting for the SALT cap. The cap was just one aspect of the package—the lower rates and brackets, expanded child credit, and smaller AMT, among other items, add up to net tax savings for all but the highest of earners.
Distributionally, only very high earners would benefit from a higher SALT cap (see Table 2). Even with an income phaseout for taxpayers earning over $400,000, the top 20 percent of taxpayers would be the only group to meaningfully benefit. Under a $62,000 cap (double for joint filers), the top 1 percent of earners would see a 0.9 percent relative increase in after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize their earnings.
compared to the existing House proposal; the bottom 80 percent of earners would see no benefit.
A more generous SALT cap could increase the long-run growth effect of the package, but it would also increase the fiscal cost unless it was offset by other changes in the bill. Proposals to make the SALT deduction more generous but offset the cost with tax hikes, like raising the top rate, would be counterproductive for the net economic benefits of the package.
Whichever direction lawmakers choose, the SALT deduction’s design should be made stable and predictable for taxpayers through a permanent solution.
Letting the SALT cap slip further upwards would undercut the TCJA’s long-term legacy, worsening the fiscal outlook of the tax package and providing an unneeded benefit to higher earners. Rather than expanding the SALT deduction, lawmakers should consider holding the line at the current $30,000 design or even limiting it further to pay for broader reforms to the tax code.
Table 1. Conventional Revenue Effect of SALT Deduction Cap Options, Billions of Dollars
Revenue Effect, Billions, Conventional20252026202720282029203020312032203320342025-2034
$10,000 SALT cap, no other limits (current policy)$-87.596.8100.2107.1110.5113.5117.0122.3126.3$981.2
$30,000 SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds (House bill proposal)$-$70.4$78.5$82.1$87.1$90.6$93.5$96.7$102.2$106.1$807.2
$25,000 (single) and $50,000 (joint) SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds$-$63.8$71.3$74.8$79.2$82.7$85.8$89.2$95.0$99.1$740.9
$40,000 (single) and $80,000 (joint) SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds$-$54.6$60.9$63.5$66.9$69.5$71.7$74.2$79.9$83.3$624.5
$62,000 (single) and $124,000 (joint) SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds$-$46.8$52.1$54.2$56.7$58.6$59.9$61.0$67.1$69.4$525.8
$62,000 (single) and $124,000 (joint) SALT cap, no other limits$-19.1321.4622.4723.4224.3725.1725.7928.2429.44$219.5
Source: Tax Foundation General Equilibrium Model, May 2025.
Table 2. Distributional Effect of Various SALT Cap Options (Stacked After May 12 Legislation Excluding SALT), Percent Change in After-Tax Market Income
Market Income Percentile$10,000 SALT cap, no other limits (current policy)$30,000 SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds (House bill proposal)$25,000 (single) and $50,000 (joint) SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds$40,000 (single) and $80,000 (joint) SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds$62,000 (single) and $124,000 (joint) SALT cap with limits for those earning over $400,000 and partial closure for pass-through workarounds$62,000 (single) and $124,000 (joint) SALT cap, no other limits
0% – 20%Less than -0.05%0.0%0.0%0.0%0.0%0.0%
20% – 40%Less than -0.05%0.0%0.0%0.0%0.0%0.0%
40% – 60%Less than -0.05%0.0%0.0%0.0%0.0%0.0%
60% – 80%-0.10%0.0%0.0%0.0%0.0%0.0%
80% – 100%-0.9%-0.9%-0.7%-0.6%-0.5%-0.2%
80% – 90%-0.3%-0.1%0.0%0.0%0.0%0.0%
90% – 95%-0.6%-0.4%-0.1%0.0%0.0%0.0%
95% – 99%-1.3%-1.3%-0.9%-0.6%-0.3%0.0%
99% – 100%-1.45%-1.7%-1.7%-1.7%-1.6%-0.8%
Total-0.6%-0.5%-0.4%-0.4%-0.3%-0.1%
Note: Market income includes adjusted gross income (AGI) plus 1) tax-exempt interest, 2) non-taxable social security income, 3) the employer share of payroll taxes, 4) imputed corporate tax liability, 5) employer-sponsored health insurance and other fringe benefits, 6) taxpayers’ imputed contributions to defined-contribution pension plans. Market income levels are adjusted for the number of exemptions reported on each return to make tax units more comparable. After-tax income is market income less: individual income tax, corporate income tax, payroll taxes, estate and gift tax, custom duties, and excise taxes. The 2026 income break points by percentile are: 20%-$17,735; 40%-$38,572; 60%-$73,905; 80%-$130,661; 90%-$188,849; 95%-$266,968; 99%-$611,194. Tax units with negative market income and non-filers are excluded from the percentile groups but included in the totals.
Source: Tax Foundation General Equilibrium Model, May 2025.
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TagsTags:Budget ReconciliationDonald TrumpState and Local Tax (SALT) DeductionTax Cuts and Jobs Act (TCJA)
LocationsLocations:United States
Authors
ExpertGarrett WatsonDirector of Policy Analysis
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