The then President Donald Trump, who signed into law a $10,000 state and local tax (SALT) deduction cap in 2017, recently teased dropping it in a post on his social media platform, Truth Social. His message comes before a rally aimed at supporting Republican House members facing re-election in New York, which has been especially opposed to capping this deduction.
In the post, Trump vowed, “I will get SALT back, lower your taxes, and so much more.” But what does SALT stand for and why is it important? Allow me to explain it.
The SALT Deduction: What Is It?
Through SALT deduction taxpayers can deduct from their Federal tax returns what they pay to their state and local governments. Before 2018 there was no limit on how much individuals could write off in taxes which helped particularly those living in high property-tax and income-tax states like New York, California, and New Jersey.
He and Trump signed a law capping the SALT deductions at $10,000 as part of the 2017 Tax Cuts and Jobs Act. This cap was put in place to reduce the overall cost of the tax reform package which carried a price tag of 1.5 trillion dollars over 10 years. The SALT cap has faced criticism from lawmakers representing high-tax states due to its disproportionate impact on their constituents.
Why Does Trump Want to Remove the Cap?
Coming out in favor of the SALT cap in 2017, Trump is now talking about eliminating it if he wins again in 2024. His declaration came during the campaign to attract Republican voters and leaders in New York, most of whom consider getting rid of the cap as their main concern. Anthony D’Esposito, who represents Nassau County in Long Island, is one of the legislators calling for having it lifted. Heading into the 2024 elections, he is among the most imperiled Republicans, the SALT cap stands out as a significant thing among his electorate. Even though many Republicans elsewhere didn’t consider it a priority, some New York Republicans along with GOP members from places such as California supported the move.
Mixed Reactions Within the GOP
Raising the SALT cap isn’t something that all Republican leaders agree with despite Trump’s change of heart. But there are no strong indications yet from House Ways and Means Chairman Jason Smith-R-Mo. or Senate Finance Chairman Michael D. Crapo-R-Idaho regarding unequivocal support for such a move. Crapo was quoted saying he prefers keeping it on while adding that “all is open for discussion” during the next tax code review in 2025.
On the other hand, Democrats have been more inclined towards eliminating this ceiling on SALT, especially those who come from states characterized by high rates of taxation. However, even during the Democrats-led congresses between 2021-2022, some didn’t manage to obtain enough backing for its repudiation. The rich households should pay more in taxes while others held that the wealthiest families wouldn’t benefit the most if the government’s priority were helping Americans most in need.
What Could This Mean for Taxpayers?
As of now, the SALT deduction cap is supposed to come to an end by 2025, together with many of the individual tax breaks included in the 2017 tax reform bill. If Trump’s proposal to get rid of the cap entailed any progress, it might lead to considerable tax relief for citizens residing in high-tax states. Nonetheless, this would be at a massive cost, since it would mean extending 2017 tax cuts as well as removing SALT caps simultaneously.
According to the estimate of the Committee for a Responsible Federal Budget (2018), fully extending these provisions till 2027 could come at about $4 trillion for the next decade. Moreover, it indicates holding on to the current SALT cap will lead to a loss of 1.2 trillion dollars more per year from other sources.
A Political Gamble?
Trump’s recent position on SALT could be a bid to regain popularity from his supporters in high-tax states, specifically New York. However, it’s uncertain how this will resonate with other parts of the country including Republicans who never raised concerns about SALT cap.
According to Senate Majority Leader Charles E. Schumer (D-N.Y.), President Trump previously favored capping the SALT deduction and this had adverse effects on many households situated in high-tax regions like Long Island. In response to one of Trump’s tweets, Senator Schumer noted that “It won’t work,” an indication that his detractors will never forgive him for initiating the above-mentioned policy.
