Published reports suggest President-elect Trump may support raising the state and local tax (SALT) deduction cap from $10,000 to $20,000 for married couples who file jointly, if Blue State Republicans agree to back a massive tax and spending bill later this year.
A new Tax Policy Center analysis finds that raising the cap to $20,000 would increase the federal debt by about $225 billion from 2025-2034, assuming all expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are extended permanently. Nearly all the benefit would go to households making about $200,000 or more.
TPC found that the change would cut household taxes overall by an average of about $100. But almost none of the benefit would go to middle- or low-income households since the vast majority pay $10,000 or less in state and local taxes today. Few itemize under current law and TPC estimates only about 4 million more would do so if Congress doubles the cap for couples.
The TCJA limited the SALT deduction to $10,000. Several states have softened the blow by allowing business owners to treat their state and local taxes as fully deductible business expenses.
Conflicting Promises
Nonetheless, GOP lawmakers from high-tax states such as New York and California have been pushing hard to repeal or at least raise the cap. Other supporters of the change also say doubling the deduction limit for married couples eliminates a marriage penalty that was created when the same cap amount was set for both singles and couples.
During his 2024 presidential campaign, Trump promised to repeal the cap but GOP congressional leaders, mostly from low-tax states, have been reluctant to touch the deduction limit. Fully repealing the cap would boost the cost of extending the TCJA by more than $1 trillion.
High-Income Households Benefit The Most
On average, households making $200,000 or less would see no change in their after-tax incomes if Congress increases the cap to $20,000. For example, 99.4 percent of middle-income households would get no tax cut at all. For the 0.6 percent who would, the average tax cut would be $470 in 2025. Middle-income households would receive less than 1 percent of the benefit of raising the SALT cap in this way.
By contrast, those making between about $430,000 and $1 million (the highest-income 95-99 percent of households) would get a tax cut averaging nearly $1,400, or about 0.3 percent of their after-tax income. The nearly-60 percent of that group who would get some tax cut would see their taxes decline by an average of about $2,300.
The Story For Married Couples
Even among married couples who file jointly, the benefit would be small. And it still would favor the wealthy over low- and moderate-income taxpayers.
The average tax cut for married couples would be about $270. But middle-income couples would get a tax cut averaging about $10. Those in the 95th-99th percentile would get an average tax cut of about $1,500.
Among those joint filers, about 90 percent of the benefit would go to couples in the highest-income 20 percent of households, and more than one-third would go to those in that 95-99 percent group. About 15 percent of the benefit would go to highest-income 1 percent.
There are a nearly infinite number of ways to raise the SALT cap. But almost all being seriously considered by Congress would largely benefit upper middle-income households.
Congress could make less regressive, less costly, but more complicated changes by limiting the benefit of the higher deduction to, say, households making less than $200,000 or prohibiting business owners from claiming their state and local taxes as a business expense. But few lawmakers seem to have those ideas on their to-do list.
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