Lawmakers want to cap the federal deduction for state and local taxes (SALT). Specifically, they’re looking at potential preventive and therapeutic changes to the currently arbitrary cap. The Tax Cuts and Jobs Act (TCJA) of 2017 set the current SALT cap. Now households can deduct no more than $10,000 in state and local tax payments combined.
The SALT cap limit applies only to levies paid to state and local governments, e.g., state income and property taxes. However, without further congressional action, the TCJA’s SALT provision is set to sunset after 2025.
Since its imposition in 2018, the SALT cap has been a contentious issue. No wonder, then, that legislators in the high-tax states of California, New Jersey, and New York are working overtime to weaken it. In fact, the current cap is one of the largest revenue raisers for the federal government.
One reform we would like to see is raising the SALT cap to $20,000 for married couples filing jointly. Raising the cap would cost even more in lost revenue, an estimated $170 billion.
The Committee for a Responsible Federal Budget estimates that extending individual and estate tax provisions will lose revenue by $3.9 trillion. This palpable impact will be felt over the next 10 years.
The future of the SALT cap is proving to be a major sore point in the 2025 tax cliff negotiations.
That's the balancing act. - Garrett Watson, director of policy analysis at the Tax Foundation.
It’s important to recall that the previous president, Donald Trump, first imposed the $10,000 SALT cap back in 2017. In fact, on the 2024 campaign trail he had a surprising reversal.
I'd love to see something happen on SALT. - Donald Trump
House Republicans’ budget blueprint calls for $4.5 trillion in tax cuts and authorizes them through 2034.
