Trump Sets the Stage for Huge SALT Deduction Overhaul to Save On Taxes

Former President Donald Trump’s potential reversal on the State and Local Tax (SALT) deduction cap has ignited a fierce debate over tax fairness and budget implications.

Trump is about to save Americans thousands, if not tens of thousands, in taxes each year.

At a Glance

  • Trump is considering doubling the SALT cap to $20,000 or indexing it to inflation
  • The current $10,000 cap affects high-tax states like New York, California, and New Jersey
  • Lifting the cap entirely would cost $1.2 trillion over the next decade
  • GOP faces internal divisions, with fiscal conservatives opposing the increase
  • The move is seen as a strategic play to help Republicans retain control of the House

Trump’s Shifting Stance on SALT Deductions

Former President Donald Trump, who initially implemented the $10,000 cap on State and Local Tax (SALT) deductions as part of his 2017 tax plan, is now considering a significant policy shift.

He’s going further.

Trump’s advisors are reportedly exploring the possibility of doubling the SALT cap to $20,000, potentially limiting this increase to married couples. This reversal comes after intense lobbying from endangered GOP lawmakers in high-tax states.

The SALT deduction cap, which has been a contentious issue since its implementation, primarily affects taxpayers in high-tax regions such as New York, California, New Jersey, and Connecticut. New Yorkers alone pay an estimated $12 billion more annually in federal taxes due to this cap. The potential adjustment reflects growing pressure from wealthy taxpayers and vulnerable Republican representatives in these states.

Political Implications and GOP Strategy

Trump’s reconsideration of the SALT cap is widely viewed as a strategic move to bolster Republican chances of retaining control of the House. Vulnerable GOP members in blue-state battleground districts plan to leverage this commitment to win over swing voters. Rep. Nick LaLota (R-N.Y.) highlighted the significance of Trump’s focus on this issue, stating, “By his appearance on Long Island, it’s evident that he understands that while some don’t consider New York to be a battleground state for him, he acknowledges that it’s a battleground state for control of the House.”

“Every opportunity I’ve had to speak with the president or to the president, SALT has been part of that conversation,” Rep. Anthony D’Esposito (R-N.Y.) said.

However, this potential policy shift has not been without criticism. Democratic opponents view it skeptically, with Rep. Pat Ryan (D-N.Y.) dismissing it as “another piece of bullshit on top of a pile of bullshit.” The issue has caused internal divisions within both parties, with fiscal conservatives and some liberal Democrats opposing the increase, viewing it as primarily benefiting wealthier families.

The debate over the SALT deduction cap is not merely political; it has significant economic and budgetary implications. Reinstating unlimited SALT deductions would cost an estimated $1.2 trillion over the next decade, a figure that gives pause to budget hawks within the GOP. Furthermore, property values have increased since 2017, meaning the $10,000 cap now affects a larger number of taxpayers.

“The president certainly wants to increase the deduction for SALT to provide more relief because he knows that our mayors and governors are crushing taxpayers,” Rep. Nicole Malliotakis (R-N.Y.) said.

Proponents of lifting or increasing the cap argue that it would provide necessary relief to middle-class families in high-tax states. However, critics contend that such a move would disproportionately benefit wealthy taxpayers who pay a large share of state taxes. The Trump administration faces the additional challenge of preventing a tax hike as individual tax cuts from 2017 are set to expire.

Potential Compromise and Future Outlook

As the debate continues, various compromise solutions are being explored. One possibility is indexing the SALT cap to inflation, which could provide some relief without fully removing the cap. Rep. Nicole Malliotakis (R-N.Y.) suggested, “If we’re focusing on the middle class and ensuring that they’re the ones getting the relief, then we can come up with a number that would be fair.”

However, achieving consensus remains challenging. New York’s Republican House representatives have indicated they may oppose any tax bill that doesn’t provide more benefits to their state. Meanwhile, efforts to repeal the SALT cap have stalled due to opposition from progressive Democrats who view it as a benefit for the wealthy.