During a press conference outside the United States Capitol earlier this year, U.S. Representative Josh Gottheimer from New Jersey discussed the SALT Caucus, a critical topic as lawmakers continue to debate changes in the tax code. At the heart of these discussions is President Donald Trump’s 2017 tax overhaul, which includes a significant $10,000 cap on the federal deduction for state and local taxes, commonly known as the SALT deduction. This cap has been contentious, especially for residents in high-tax states like California, New Jersey, and New York, where property and income taxes often exceed the capped amount.
Before the Tax Cuts and Jobs Act (TCJA) was enacted, taxpayers faced no limit on SALT deductions, although the alternative minimum tax sometimes tempered the benefits for wealthier individuals. The current SALT cap, a central component of the TCJA, is set to expire at the end of 2025 unless Congress decides otherwise.
In the context of broader tax negotiations, especially from representatives of states heavily impacted by these limits, the future of the SALT deduction remains a heated topic. Former President Trump, who initially set the cap, has shifted his stance. On the campaign trail and past interviews, he vowed to revisit the issue if he regains office, adding another layer of complexity to ongoing tax discussions.
Garrett Watson, who oversees policy analysis at the Tax Foundation, highlights the challenge that lawmakers face. “The SALT cap is a major revenue raiser,” Watson notes, underscoring the delicate balancing act required in shaping tax policy.
Looking further into the future, other significant TCJA provisions are also set to sunset after 2025, including beneficial tax bracket adjustments and incentives for businesses. According to the Committee for a Responsible Federal Budget, maintaining current individual and estate taxes could mean a $3.9 trillion reduction in federal revenue over the following ten years.
Among the proposals put forward is an increase in the SALT cap to $20,000 for married couples filing jointly, which could further reduce revenue by approximately $170 billion. Additional suggestions include more generous deduction limits or exemptions based on income levels.
Meanwhile, Republicans, now controlling both chambers, are exploring using reconciliation to push forward Trump’s tax agenda. Their current plan outlines $4.5 trillion in tax cuts by 2034—a staggering figure, yet viewed by some as insufficient given the scope of proposed reforms. Andrew Lautz from the Bipartisan Policy Center remarks that any significant tax deal this year will almost certainly have to address the issue of SALT.
With these tax policies in flux, the outcome remains uncertain, promising a robust debate as lawmakers tackle fiscal priorities amidst intense scrutiny from constituents and financial experts.
