Republicans’ tax-and-spending cut package faces a number of hurdles in its path to President Trump's desk, but the state and local tax (SALT) deduction cap could be the tallest to surmount.
Tax writers on the House Ways and Means Committee have offered to raise the cap to $30,000 for joint filers making up to $400,000 a year. But suburban Republicans from higher-tax blue states have said that number isn’t going to cut it and are threatening to spike the entire bill if they don’t get the increase they want to see.
Republican members of the SALT Caucus have advocated for a $62,000 cap and $120,000 for couples. GOP leadership reportedly discussed raising the cap to $40,000 for individuals and $80,000 for couples with hard-liners in their conference over the weekend, suggesting those could be the new numbers for a final compromise.
Here’s a look at what the SALT deduction cap is, how it works within the broader tax code, and why it’s controversial enough to jeopardize the entire GOP agenda.
What is the SALT cap?
SALT is a tax break that lets taxpayers deduct part of what they owe in state and local taxes from their federal tax return. Prior to 2017, the deduction was unlimited, but the tax reforms in that year capped it at $10,000 for single filers and $20,000 for joint filers.
That cap is worth thousands of dollars to millions of typically higher-income taxpayers, who itemize their deductions instead of taking the standard deduction. Different estimates from the Joint Committee on Taxation put the cost of an unlimited deduction at around $1 trillion over the next decade.
Before 2017, the average SALT deduction was around $13,000, according to the Urban-Brookings Tax Policy Center. That’s $3,000 higher than where it was capped.
In 2022, nearly 10 percent of all taxpayers used a SALT deduction. With around 162 million tax returns filed for that year, more than 15 million American taxpayers likely used some form of SALT.
Property taxes on things like houses and vehicles are also often eligible for the SALT deduction.
There is also a business SALT deduction that allows companies to deduct part of what they owe in local tax from their federal returns.
SALT is more valuable where state and local taxes are higher
The SALT deduction is more valuable for people with higher state and local taxes. Typically, those people live in more affluent coastal states, where taxes and the cost of living are higher.
Accordingly, taxpayers dislike the cap on the deduction more in those states.
Senate Minority Leader Chuck Schumer (D-N.Y.) — a born-and-raised New York resident — has called the cap a “nasty” bit of legislation.
“I’ve always been for eliminating the cap on SALT. I think it was a nasty piece of legislation, supported by Donald Trump, aimed at the blue states, which help the people of their states in many ways,” he said last year.
Political organizers say the issue is now top of mind for many voters, superseding other issues of high importance.
Political consultant Gabby Seay, who ran a 2023 special election canvassing campaign for Rep. Tom Suozzi (D-N.Y.), said SALT was on the tip of voters’ tongues as they knocked on doors in January of last year in New York’s 3rd Congressional District.
“This is a heavily Jewish district, it’s a really diverse district. … We anticipated Israel and Gaza being the issue because it was really fresh then, and it was a huge issue nationally. … But it never came up on a single door, and we knocked on 700,000 doors in less than a month. … What did come up was taxes and specifically SALT taxes and how they’re waiting on someone to deliver on their promises,” Seay told The Hill.
The geopolitics of SALT — the 'donor state' and 'taker state' argument
SALT is such a touchy issue in part because it is a tax break that benefits wealthier taxpayers more, and Republicans in poorer parts of the country don’t think they should have to pay it.
Nationwide, almost all people making more than $200,000 claim a SALT deduction, according to the National Association of Realtors. That’s fewer than 15 percent of U.S. households, according to census data. For people making less money, use of SALT falls off sharply.
“With my colleagues who want their SALT cap increased … which is subsidizing blue state high-tax jurisdictions, if they want that, then I want the reforms to Medicaid,” Rep. Chip Roy (Texas), one of the GOP budget hawks seeking public health care reductions, said last week.
Democrats and blue-state Republicans frequently counter that their states effectively subsidize lower-tax states through their higher federal revenues, and that they deserve relief for taking a larger share of the national tax burden.
“We’re older states. We’re mature industrial states,” said Suozzi during a Ways and Means Committee markup of the bill. He proposed an amendment last week to increase the SALT cap to $80,000, which was voted down.
“[These] high-tax states give more to the federal government than they get back in federal services, and most of the red states are taker states — states that get more from the federal government than they actually pay in taxes.”
Is there effective SALT relief in another part of the tax code?
The Republican tax bill extends an increased cutoff for the alternative minimum tax (AMT) — another tax provision for wealthy taxpayers. The boosted AMT threshold is very expensive, costing more than $1.4 trillion through 2034. Altogether, the tax portion of the GOP bill is set to cost $3.8 trillion over the next decade, less than the $4.5 trillion limit that GOP tax writers had set for themselves.
Some tax lawyers say that the modestly increased SALT cap, when paired with the higher AMT, will put wealthy taxpayers in blue states in a better position than they had before.
“Taking a whole bunch of these upper-middle class or lower-upper class out of the AMT and giving them $30,000 of SALT deduction puts a bunch of them in a far better position than they were,” Rohit Kumar, former deputy chief of staff to Sen. Mitch McConnell (R-Ky.), told The Hill.
Republican members of the SALT Caucus aren’t being swayed by arguments linking the SALT and AMT caps, despite their potential interactions.
“It’s not actually a connection between the two,” Rep. Andrew Garbarino (N.Y.), one of the core SALT Republicans who is threatening to spike the overall package, told The Hill. “The Ways and Means Committee is saying there’s a connection between the two, but they’re two separate things.”
“AMT hit a lot of people, just like the SALT cap hit a lot of people. When it was lower, it was hitting 5 million people, and now it hits only about 200,000 in the country. So I would love to not see the AMT come back either,” he added.
Business SALT change throws another wrench in the works
SALT for businesses, which are set to benefit from a boost in the pass-through deduction to 23 percent from 20 percent, is another front of controversy for the tax deduction.
For one type of business designation known as specified service trade or business (SSTB), state and local tax deductions from business profits are set to be excluded and will mean higher taxes for companies with medical, financial, legal and entertainment practices, tax lawyers say.
“Doctors in the medical field, veterinarians, dentists, physical therapists, accountants, actuaries … [these are] people who talk to congressmen, who donate, who run into [lawmakers] when they do district stuff — it’s a problem, a big, big problem. I don’t think they knew when they were drafting this that this was inviting a big political problem, but it is,” tax attorney and enrolled IRS agent Ryan Ellis told The Hill.
SSTB industries are getting hip to the change and starting to sound an alarm.
“The American Dental Association is urging Congress to restore the [pass-through entity taxation] deduction and ensure tax parity for some of our most impactful professions,” a representative for the American Dental Association told The Hill. “Congress must act now to amend the budget reconciliation bill and prevent a disproportionate tax hike on dentists and other service-based small business owners.
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