The state and local tax deduction (SALT) is getting attention lately. That's partly because Republican presidential nominee Donald Trump just floated the surprising idea (supported by some Democrats) to "bring back SALT" (i.e., get rid of the $10,000 deduction cap).
The SALT deduction has been part of the U.S. tax code for over a century. The tax break allows eligible taxpayers to reduce their federal tax liability by deducting certain state and local taxes.
However, major tax changes in recent years and ongoing political debate, including Trump’s recent comments, have spotlighted this deduction again.
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So, what’s happening with the SALT deduction? Here are three things you need to know now.
1. What is the SALT deduction?
The SALT deduction allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income. These taxes include state property taxes, income taxes, and sales taxes.
Before 2018, there was no limit on the amount that could be deducted. However, the Tax Cuts and Jobs Act of 2017 (TCJA) imposed a cap of $10,000 on the SALT deduction ($5,000 for married individuals filing separately) from 2018 to 2025.
- Taxpayers have to itemize their deductions to be eligible for the SALT deduction rather than taking the standard deduction.
- So, the SALT deduction and other itemized deductions must exceed the standard deduction to be beneficial.
Note: For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.
2. Why the Trump SALT cap is in the news
Just recently, former President Donald Trump made headlines with a social media post calling for reinstating the full SALT deduction.
"VOTE FOR TRUMP! I will turn it around, get SALT back, lower your Taxes, and so much more," the former President posted on Truth Social.
The claim, seemingly designed to appeal to voters in the Empire State, is the latest in a string of tax proposals mentioned in Trump campaign events, from no tax on tips to ending taxes on Social Security and eliminating federal taxes on overtime pay. The SALT cap has been particularly unpopular in high-tax states like New York, New Jersey, and California — so-called “blue states” that typically lean Democratic but where Trump hopes to gain support.
However, the "get SALT back" claim is ironic since the deduction was capped at $10,000 due to the TCJA. The TCJA is the signature tax overhaul of the Trump Administration, sometimes referred to as the “Trump tax cuts.”
Senate Majority Leader Chuck Schumer (D-NY) responded to the latest Trump promise referring to it as "selective amnesia," and saying, “Trump was the one who took away SALT. It hurt many New Yorkers, including lots on Long Island...Now that he’s going back to Long Island for the first time he changes his mind? Give me a break.”
(Trump has a rally scheduled in Long Island on September 18).
And adding to the chatter: The SALT cap, with other key tax provisions, is set to expire soon — at the end of next year if Congress doesn’t act. (Limiting the SALT deduction served as an offset for various TCJA tax cuts. Estimates from the Joint Committee on Taxation (JCT) had the cap increasing federal revenues by about $21 billion a year.)
Some opponents of the SALT cap argue the limitation primarily impacts majority Democratic states with high local and state taxes, like New York, California, New Jersey, and Connecticut. Data show some of these states have seen reduced tax benefits for residents and various impacts on property values and local government budgets.
3. What the TCJA expiration means for the SALT deduction cap
As mentioned, the SALT deduction cap is set to expire at the end of 2025, along with many other provisions of the TCJA, setting up a major tax battle on Capitol Hill after the election.
So, proponents of reinstating the full SALT deduction often argue that the cap disproportionately affects residents of high-tax states, which tend to provide extensive public services. Other related arguments are that:
- Reinstating the deduction would prevent double taxation by allowing taxpayers to avoid paying federal taxes on income already paid to state and local governments.
- It would also support state and local government autonomy in setting tax rates.
Meanwhile, some opponents of reinstating the full SALT deduction contend that the tax break primarily benefits taxpayers with higher incomes. According to the Tax Foundation, before the cap, 91% of the deduction's benefit went to those with incomes over $100,000.
So, the arguments for not reinstating the full deduction are primarily that:
- The SALT deduction incentivizes higher state and local taxes, potentially leading to less efficient government spending.
- Removing the cap would significantly reduce federal revenue.
The fiscal impact? The JCT estimated that the SALT deduction cap would increase federal revenue by about $77 billion in 2019 alone. Conversely, removing the cap would result in a significant loss of federal revenue (a little over $1 trillion according to Committee for Responsible Budget estimates). (It's worth noting that several options to deal with the SALT deduction, beyond full reinstatement, are floating around with varied projected budget impacts).
The debate over the SALT deduction has created unusual political alliances. Some Democrats from high-tax states have pushed for the cap's removal. This would notably align with Trump who at least, for now, appears to support the deduction’s reinstatement, though no specific details are available yet from the Trump campaign.
Notably, progressive Democrats and fiscal conservatives sometimes find themselves on the same side in supporting the SALT cap, though for different reasons. For instance, some progressives see it as a way to help achieve tax fairness (not reducing taxes for the wealthy).
State and local tax deduction: Bottom Line
As the TCJA expiration approaches, the SALT deduction will be a contentious issue in tax policy debates. What happens with the deduction (and with other key tax provisions in the TCJA) will have significant implications for federal revenue and state tax policy.
As the debate unfolds, lawmakers will have to weigh the benefits of tax relief for residents of high-tax states against the potential loss of federal revenue and concerns about tax fairness. This won’t be easy given the deep political divides in Congress.
So, if you’ve been impacted by the SALT cap, stay tuned. You’ll be hearing more than you would probably like about tax and tax credits and deductions for the remainder of the 2024 presidential campaign and well into next year.
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