President Donald Trump has shifted focus from international matters to a significant domestic challenge: the passage of his ambitious tax-budget-and-border bill, which he hopes to finalize by July 4. On Truth Social, he emphasized the urgency, stating, "Now that we have made PEACE abroad, we must finish the job here at home by passing 'THE GREAT, BIG, BEAUTIFUL BILL,' and getting the Bill to my desk, ASAP." This call to action comes as Republican senators find themselves entangled in negotiations over various provisions of the bill.
One contentious issue threatens to derail the entire effort: the state and local income tax deduction, commonly known as the SALT deduction. The question arises: how significant a tax subsidy will a Republican Congress extend to high-income residents in predominantly Democratic suburban areas and major cities in the Midwest and coastal regions?
SALT Deduction Explained
The SALT deduction has long been a fixture of the U.S. tax code, allowing taxpayers to deduct the full amount of state and local income and property taxes from their federal returns. This provision has disproportionately benefited upper-middle-class residents in blue states like New York, California, and New Jersey. According to the Tax Foundation, in 2017, taxpayers earning more than $200,000 reaped 71 percent of the deduction's benefits, totaling a staggering $58 billion.
Impact of 2017 Tax Reform
Trump's 2017 tax reform law significantly reduced the SALT deduction cap to $10,000 per couple. This reduction was not only a strategic move to offset the costs of other tax cuts, but it also served as a means of promoting fairness within the tax system. The higher standard deduction, along with the SALT cap, led to a dramatic drop in the average SALT deduction claimed by households, decreasing from $16,000 in 2017 to just $8,300. In New York, the average deduction plummeted from $28,200 to $9,400—a staggering 67 percent decline.
May 24, 2023 Latest on debt ceiling negotiations | CNN Politics
Arguments Against SALT Restoration
Advocates for restoring the SALT deduction argue that without it, taxpayers face double taxation for government services. However, this argument is flawed; federal taxes largely fund services like national defense, while state and local taxes support services such as education and infrastructure. The SALT deduction effectively enables wealthier states to continue their high-tax, high-spending policies, shifting the burden onto taxpayers in lower-tax states.
Since the Democrats regained control of Congress in 2021, there have been concerted attempts to reverse Trump's SALT cap. These efforts have been backed by unions and government worker organizations that benefit from increased government spending enabled by a generous SALT deduction. As reported by Fox News, SALT restoration was one of the most expensive components of Biden's $1.75 trillion Build Back Better bill, with a projected cost of $207 billion over ten years.
Political Ramifications for Republicans
Now, as Republicans control Washington, the SALT cap expiration coincides with the need to maintain party unity. Suburban GOP representatives, including Young Kim of California and Mike Lawler of New York, who won competitive districts, are now pushing to increase the SALT deduction. This creates an ironic yet significant shift from the previous Democratic agenda. To pass the Big Beautiful Bill, the House requires these suburban Republicans' support, and they have insisted on raising the SALT cap to $40,000 per couple, indexed to inflation—an estimated cost exceeding $300 billion.
Speaker Mike Johnson faces a critical challenge; he cannot afford to lose even one Republican vote if he hopes to navigate the bill through the narrow margins of Congress. Lawler has made it clear that even a minor reduction in the SALT cap would lead him to vote against the measure, disregarding the fact that the bottom 80 percent of households would see no benefit from this provision, as noted by the Tax Foundation.
Senate Republicans Slam SALT Cap Proposal | U.S. Senator Mike Crapo
Senate Response and Trump's Role
The Senate's initial draft of the bill maintains the $10,000 SALT cap, though Majority Leader John Thune has shown openness to negotiations. The solution appears to rest with Trump; however, he has not yet indicated a willingness to revisit the SALT cap, despite its status as a key achievement during his first term. During the 2024 campaign, Trump sought suburban votes by hinting at a reassessment of the SALT cap, but the consequences of such a move could be dire for conservative fiscal policy.
The potential fallout from yielding to demands for a SALT deduction increase would not only jeopardize the integrity of Republican tax policy but could also reinforce the financial entitlements of high-income earners in blue states—individuals who are unlikely to support Trump or the Republican agenda. The irony of this situation is stark; the GOP may find itself funding the very constituencies that oppose its values and policies.
