U.S. Representative Josh Gottheimer (D-NJ) speaks during a press conference about the SALT Caucus outside the United States Capitol on Wednesday February 08, 2023 in Washington, DC.
Matt McClain | The Washington Post | Getty Images
As lawmakers debate President Donald Trump’s tax cuts, a key deduction could become a sticking point in 2025 tax negotiations, policy experts say.
Enacted via the Tax Cuts and Jobs Act, or TCJA, of 2017, there’s currently a $10,000 limit on the federal deduction on state and local taxes, known as SALT. Residents who itemize tax breaks cannot deduct more than $10,000 in levies paid to state and local governments, including income and property taxes.
That could change amid tax negotiations with lawmakers from high-tax states like California, New Jersey and New York.
Since 2018, the SALT cap has been a hot-button issue among certain lawmakers from those high-tax states. Before TCJA, the SALT deduction was unlimited, but the so-called alternative minimum tax reduced the benefit for some higher earners.
The TCJA SALT provision will expire after 2025 without action from Congress.
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Although Trump enacted the $10,000 SALT cap in 2017, he reversed his position last year on the campaign trail, vowing to “get SALT back” if re-elected. He has renewed calls for reform since being sworn into office.
“I’d love to see something happen on SALT,” Trump said in a Fox News interview on Sunday.
However, it’s unclear how the provision will ultimately change amid competing tax priorities and a limited budget.
“The SALT cap is a major revenue raiser,” said Garrett Watson, director of policy analysis at the Tax Foundation. “That’s the balancing act.”
Trillions of dollars in tax breaks enacted via TCJA are scheduled to expire after 2025, including lower tax brackets, a bigger child tax credit and a 20% deduction for pass-through businesses, among others.
Extending individual and estate tax provisions would reduce revenue by $3.9 trillion over the next decade, according to the Committee for a Responsible Federal Budget.
One SALT reform proposal, which aims to raise the SALT cap to $20,000 for married couples filing jointly, would further decrease revenue by $170 billion, the organization estimates.
Other plans have called for a higher SALT deduction limit or raising the cap for taxpayers under a certain income threshold.
The budget is ‘too small’ for tax agenda
With control of both chambers of Congress, Republicans plan to use a process known as “reconciliation” to enact Trump’s tax agenda. Currently, the House Republicans’ budget blueprint authorizes $4.5 trillion in tax cuts through 2034, though it could change in Senate negotiations.
That’s an “almost unfathomably large number and somehow too small for the current agenda,” unless lawmakers include offsets to pay for the proposed tax cuts, said Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program.
“If there is a major tax deal this year, it seems almost certain that SALT will be part of the discussion,” he said.