Before tax accountant Jack Hahne moved from Atlanta to New York City in 2022, the state and local tax deduction cap, commonly known as the SALT deduction cap, hardly concerned him.
“I was making a little bit less money, so it wasn’t something I was particularly concerned about because it wouldn’t really impact me very much,” Hahne said.
But Hahne could no longer be indifferent following his move to a state with a much higher tax burden. His cost of living expenses and salary rose in New York, as he expected. But when he sat down to file his taxes, he realized he could only deduct $10,000 of his state and local taxes from his taxable income.
The 2017 Tax Cuts and Jobs Act, the Trump administration’s sweeping tax bill, placed a $10,000 cap on the state and local taxes that taxpayers could deduct from their taxable income. If this cap did not exist, Hahne’s itemized deductions, eligible expenses that could be written off his taxable income, would be greater than the standard deduction, which was a flat amount he could deduct.
With the SALT deduction cap enacted, Hahne would not benefit from itemizing his taxes: The cap pushed his potential itemizations under the standard deduction amount, which stood at $14,600.
From Hahne’s calculations, without a SALT deduction cap, he would have saved about $300 out of the $29,000 he paid in taxes last year.
“It’s not something that is a huge impact immediately,” Hahne said. “As I plan to get married, settle down, have kids and all that … it is something that is going to become more and more of an issue for me just as I plan out my life going forward.”
The debate over SALT has been heating up among high-tax state residents and lawmakers because the 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025. During Trump’s 2024 election campaign, he pledged to repeal the same cap he signed into place, but the future of SALT is anything but certain.
SALT Caucus Republicans have taken up a key role in the tax debate as the reconciliation process is underway. These lawmakers hold the power to stall the passage of any tax policy sought by the rest of the GOP. In late February, House Republicans allocated $4.5 trillion for tax cuts in their budget resolution but it is unclear how SALT reform will fit into the broader tax cuts.
Future changes in SALT policy would dictate which parts of the nation would receive a sizable percentage of the allocated tax cuts. If the cap increased, many residents of high-tax states would experience a drop in their tax burden. However, this change may come at the expense of other tax or spending cuts nationally, or increase the budget deficit.
Who’s impacted by the SALT cap?
The SALT deduction cap became a cornerstone issue for many New York, New Jersey and California lawmakers. They have expressed frustration that middle-class residents of high-tax states are bearing the burden of the cap.
“This clearly impacts the middle class, the working class so that’s why we’re focused (on it),” Rep. Mike Lawler (R-N.Y.), a member of the SALT Caucus, said to Medill News Service.
Only 10% of taxpayers opted for itemized deductions in 2020, according to the Tax Policy Center. State and local taxes fall under the umbrella of itemized deductions.
However, the changes to SALT policy impacted a much broader group of Americans than just those currently filing for the deduction.
The number of people who took itemized deductions, consequently the SALT deduction, significantly fell after the Tax Cuts and Jobs Act passed. The act doubled the standard deduction and capped the SALT deduction, making itemized deductions less profitable for more Americans. In the 2020 tax year, 90% of taxpayers opted to take the standard deduction compared to only 70% of taxpayers in 2017, the year before the changes went into effect, according to the Tax Policy Center.
Critics of SALT deductions still argued that only the wealthiest Americans faced significant tax hikes because of the cap.
“There’s pretty minimal to no benefit for those in the bottom 60% of incomes nationally. So it is sort of distributed more to the upper-income groups,” said Garrett Watson, the director of policy analysis at the Tax Foundation.
Those most likely to be affected by the change fall in the upper-income thresholds. High-tax states’ residents and representatives argued, however, that there is a significantly different definition of who qualifies as middle class versus wealthy in different states.
“Wealth is a very subjective thing because in my district if you’re a police officer married to a nurse, you’re making $250,000 or $300,000 a year,” Rep. Tom Suozzi (D-N.Y.), who is a co-chair of the SALT Caucus, said to Medill News Service. “Where we live on Long Island, the houses are so expensive, the taxes are so high that you’re really just a middle-class person … whereas if you’re making $250,000 or $300,000 a year in Oklahoma, you belong to a country club and you live in a gated community.”
Shaker Nelanuthala, an IT project manager and volunteer for Suozzi’s campaign, faced the scenario that Suozzi described. Nelanthala, who lives on Long Island, said his household earned an annual income of approximately $200,000, putting him in the top 20% of wage earners nationally, according to The Washington Post.
For Nelanthala, who described himself as upper-middle class, the SALT deduction cap had hurt him significantly. He lost $25,000 in deductions to his taxable income.
“The middle-income people, they’re the ones that are basically getting impacted a lot,” Nelanthala said. “When you add up (taxes), it is a significant amount.”
What is the impact on the budget?
Raising the SALT deduction cap would not be costless for the federal government. If the federal government decided to double the cap to $20,000, federal tax revenue would decline by approximately $225 billion over the next 10 years, according to the Tax Policy Center. The loss in revenue would be even greater if Congress decided to eliminate the cap, allowing for unlimited SALT deductions. This lost revenue would amount to approximately $1.2 trillion.
Advocates against raising the cap argued that changing the SALT policy could come at the expense of other tax cuts.
“By definition, each additional dollar that Republicans are giving to high-income taxpayers in these high-tax areas is $1 less that can go to keeping America’s business tax code competitive, incentivizing investment and jobs coming back to America, to keeping tax rates low for all taxpayers, for keeping the Child Tax Credit reforms,” said Adam Michel, the director of tax policy at the Cato Institute, a libertarian think tank. “If these salt members extract a large dollar value for whatever they need on the SALT cap, it means you get less of all the sort of pro-growth generally applicable non-tax cuts.”
Andrew Wilford, a senior policy analyst at the National Taxpayers Union Foundation, argued that Congress should instead focus on “broad-based” tax reform that “benefits taxpayers broadly” rather than a “very small group of wealthy taxpayers.”
Is it fair for high-tax states?
The debate over SALT corresponded with a fight over whether these high state tax rates were justified.
For most Republicans, regardless of their take on SALT, these high-tax, often Democratic-leaning states behaved recklessly with their tax rates.
For pro-SALT Republican representatives, the past SALT deductions acted as relief for their constituents from these high-tax rates.
“My mayor and governor keep hammering taxpayers to death. … This really is a problem created by the city and state,” said Rep. Nicole Malliotakis (R-N.Y.), who is a member of the SALT Caucus, to Medill News Service. “We’re doing what we can to try to provide some relief on the federal level.”
Conservative advocates against SALT argued the cap acted as a check on state governments, pushing them to lower their taxes rather than “subsidizing” their tax bill.
“It’s almost like a discount on your state tax bill. That’s something that enables and encourages states to increase their taxes because they’re able to tell their wealthiest residents that they can just write it off at the federal level,” Wilford said.
However, the notion that low-tax red states had previously subsidized high-tax blue states is misleading.
William Gale, the co-director of the Urban-Brookings Tax Policy Center, agreed the SALT deduction cap mainly hurt high-income taxpayers in high-tax states. He said the policy, however, heightened a disparity between the amount that high-tax, Democratic-leaning states give to the federal government compared to how much they received back in federal spending.
“The blue states do pay more, and this exacerbates that imbalance,” Gale said.
States such as New York, New Jersey and California received less federal funds from the federal government than they paid in 2021, according to the Washington Post, which is not indicative of a subsidy from red states. Additionally, from 2018 to 2022, blue state taxpayers contributed nearly 60% of all federal tax receipts but received only 53% of all federal contributions to states, according to Time.
Local advocates for SALT argued that, because of the federal imbalance in spending, state and local spending has become integral for the wellbeing of local communities.
“Local taxation is so unique because those dollars go straight back into the community, and folks can really see the benefit,” said Dante Moreno, the manager for legislative advocacy for the National League of Cities. “State and local control … is very much in the 10th Amendment of the Constitution. There is supposed to be an amount of state and local control, especially because (the governments) are the most beholden to our constituents.”
There is little evidence that states and localities have shifted their tax policies because of the 2017 SALT deduction cap. However, some tax policy experts are concerned that if a cap became permanent, states may opt to lower their taxes, which could hurt the most vulnerable communities reliant on state and local programs.
“If that limitation on state revenues then affects what states can spend, then you have to look at who benefits from the state spending,” Gale said. “If you think about what the state spends money on its education and health care and transportation and stuff like that, then you can at least form a judgment that some groups that benefit from education and health might end up being hurt by the cap.”
The future of SALT?
The House passed a budget resolution on Feb. 25, 2025, that included $4.5 trillion in tax cuts for the next 10 years. Yet, the plan for future tax cuts has not been finalized since the budget is currently being debated in the Senate and Congress has not decided how tax cuts will be allocated.
It remains unclear how the SALT Caucus will manage to squeeze their relief in, given that the president placed significant pressure on Congress to extend his 2017 tax cuts, which would cost $4.2 trillion over the next 10 years alone, according to the Treasury Department.
However, considering the slim Republican margin in the House, the SALT Caucus may have an oversized impact in the debate over tax cuts. The Republicans cannot afford to lose many votes on a tax bill if the Democrats remain united, with a slim 218-213 majority.
Some SALT Caucus Republicans vowed to vote against any bill with insufficient changes to the cap.
“Without a fix to the cap on SALT, I will not support a tax (bill),” Lawler said to Medill News Service. “So it will be part of the final package.”
