Republicans Have a SALT Tax Deal. Who Will Benefit?: QuickTake

For as long as Americans have paid federal income taxes, they’ve been able to subtract some of what they pay to their state and local governments from their taxable income. This federal deduction for state and local taxes — the SALT deduction, for short — has a big influence on how the tax burden is divided. It tends to help taxpayers in wealthier, more urban states, where sales taxes are higher and real estate costs more.

President Donald Trump’s first-term tax law, approved in 2017, capped the SALT deduction at $10,000 — the first across-the-board cap on the deduction in its history. In the years since, removing or raising the cap has become an important cause for lawmakers representing districts in high-tax states.

As members of Congress negotiate a tax-and-spending bill that includes an extension of the 2017 law, a group of Republican representatives from those districts have made raising the cap a condition for their support of the larger bill. On May 21, they reached an agreement with Speaker Mike Johnson and other House leaders: The bill will increase the SALT deduction cap to $40,000. Here’s what to know.

President Donald Trump and US House Speaker Mike Johnson at the US Capitol on May 21.

Photographer: Ting Shen/Bloomberg

Who uses the SALT deduction?

Mainly taxpayers with relatively high incomes — the 10% to 15% of filers who itemize their federal tax returns rather than take a standard deduction. If the $10,000 cap is increased, almost none of the benefits would flow to households making less than $100,000 a year, according to the Committee for a Responsible Federal Budget.

Those households are heavily concentrated in states that have traditionally voted for Democrats statewide, such as New York, New Jersey, Connecticut, California and Maryland. Taxpayers in relatively low-tax, traditionally “red” states like North Dakota, South Dakota and Wyoming see less impact from the cap. The majority of Republican lawmakers find it politically difficult to effectively subsidize high-tax blue states.

However, because a handful of Republicans in the House represent wealthy, high-tax districts in states such as New York, the SALT deduction is not a neatly partisan issue in Congress. Similarly, Democrats are split on the SALT cap — some serve the interests of high-income earners in expensive areas, while most serve a base that wants to make the tax code more progressive. No Democrats are expected to support the broader bill, however, as they were excluded from its drafting.

Republican Representative Mike Lawler of New York said lifting the cap on the state and local tax deduction is an essential piece to get the tax-cut bill passed.

Source: Bloomberg

Why was the deduction capped in 2017?

Trump and congressional Republicans enacted the cap to offset some of the revenue lost from their tax cuts, which were implemented in 2018. Then-House Speaker Paul Ryan initially proposed eliminating the write-off altogether. Negotiators eventually landed on allowing $10,000 in deductions to appease Republicans from high-tax states, even as many still voted against the overall compromise.

What is the agreement Republicans reached on SALT?

Republicans hold only narrow majorities in both the Senate and the House, and party leaders need the support of members representing districts in high-tax states as they work to pass the bill. This has given those members the leverage to demand an increase in the SALT cap.

According to a person familiar with the negotiations, the $40,000 SALT cap Republicans agreed on will apply to both individual taxpayers and married couples filing jointly. Under the agreement, the cap will phase out for taxpayers with annual incomes greater than $500,000 – “anyone making above that would go back down to $10,000, which is the current cap,” Representative Mike Lawler, a New York Republican closely involved in SALT negotiations, told Bloomberg Television. The income phaseout threshold would grow 1% a year over a decade, according to the person familiar with negotiations.

Where does Trump come down on the issue?

Since the start of his 2024 campaign for the presidency, Trump has repeatedly said he wants to raise the cap. He promised to “get SALT back” while campaigningon Long Island, New York last year, where Republicans were defending competitive House seats in the state. He also reiterated his desire to change the cap in private meetings with House Republicans at the White House and Mar-a-Lago after his inauguration.

He has taken that stance despite signing the cap into law in 2017. But eight years later, Trump is preparing to defend the slimmest of Republican majorities in the 2026 midterm elections. Giving Republicans in high-tax states a win they can tout to voters could help Trump keep unified control of Washington.

What much would increasing the cap to $40,000 cost?

As of May 21, the Tax Policy Center had not yet released an analysis of the cost of increasing the SALT cap to $40,000 with limits for taxpayers making over $500,000. But the organization previously estimated that raising the cap to $40,000 for most filers without any income limits would cost the government about $600 billion over a decade compared to extending the current $10,000 cap and other major provisions of the 2017 tax law.

The Reference Shelf

A Bloomberg report that shows a minority of taxpayers would benefit from a SALT cap increase
The Tax Foundation’s map showing the average SALT bill by county

--With assistance from Erik Wasson and Nacha Cattan.

To contact the reporter on this story:
Zach C. Cohen in Washington at zcohen38@bloomberg.net

To contact the editors responsible for this story:
William Norris at wnorris8@bloomberg.net