Corporate SALT Break Tweaks Force GOP to Pick Winners and Losers

Republicans face a dilemma as they figure out how to address the state and local tax deduction: whether to limit the break for corporations as they make it more generous for individuals.

Raising the $10,000 individual SALT cap, included in the GOP’s 2017 tax law, has been a top priority for Republicans in high-tax states, while conservatives in the party warmed to potentially tightening the corporate SALT write-off—which isn’t capped—to pay for that increase or other priorities. Curbing corporations’ ability to deduct state and local taxes also could create more parity among different types of taxpayers.

That’s left some of those Republicans from high-tax states in a tight spot as they evaluate whether to support a corporate SALT cap while crusading for loosening the individual cap, since their districts could be affected by changes to the SALT deduction in both parts of the tax code.

“There are ways to adjust the dial on each side,” Rep. Nicole Malliotakis (R-N.Y.), who sits on the tax-writing House Ways and Means Committee, said in an interview last week. “Could corporate SALT be impacted to benefit individuals who are of middle income? I believe so—it’s certainly on the table.”

The corporate SALT deduction debate reflects existential schisms among Republicans, with populists eager to target large corporations, more traditional Republicans who want a light-touch approach to job creators, and swing-district Republicans eager to deliver wins for constituents. The factions will have to come together if the thin GOP majority wants to pass legislation extending the tax law’s expiring provisions.

Eliminating the “business SALT deduction” would raise an estimated $310 billion over a decade, according to a roughly 50-page GOP House Budget Committee document that includes a menu of reconciliation policy options. Other estimates suggest it could generate more.

But finding ways to offset the estimated $4.6 trillion price tag of extending the 2017 tax law will likely be a tough slog. A House budget blueprint advanced last week allows Ways and Means to add $4.5 trillion to the deficit for its legislation that extends the tax law.

Rep. Nicole Malliotakis (R-N.Y.) speaks to a TV news crew in September 2024. Malliotakis is among a group of Republicans looking at state and local tax deduction issues.

Bill Clark/CQ-Roll Call, Inc via Getty Images

A Vexing Issue

New York Republicans like Reps. Nick LaLota and Mike Lawler said during the November election that retaining a GOP House majority would be the best shot at resolving the SALT deduction issue this Congress.

LaLota said he’s still assessing his support for a corporate SALT cap.

“If one of my colleagues brings corporate SALT as a pay-for in order to enhance more individual SALT, I think the analysis should start with who gets hurt by that the most,” he said in an interview. “If the pain is mostly borne by blue states like mine, then I wouldn’t be in favor.”

Finding a SALT cap fix has vexed lawmakers before and after President Donald Trump signed the 2017 tax law. A former New Yorker himself, Trump has more recently called for relief.

New York Republicans couldn’t get traction last Congress when they tried to boost the cap to $20,000 for some joint filers. House Democrats in 2021 passed a wide-ranging economic package that would have raised the cap to $80,000, but what ultimately became law was a much narrower tax-and-climate package that didn’t include SALT cap changes.

Ways and Means ranking member Richard Neal (D-Mass.)—on the sidelines this year as Republicans seek to pass a tax bill without Democratic votes—said the SALT issue highlights how hard reconciliation can be.

“You’re likely, in there, to have 435 definitions of what makes SALT fair,” Neal said in an interview.

State Workarounds

Lack of parity between corporations and pass-through businesses, and between individuals who are and aren’t pass-through owners, is on lawmaker minds as they weigh changes to the SALT deduction for corporations.

Businesses generally made out well in the 2017 tax law, which slashed the corporate rate to 21% from 35%. The law also created a 20% deduction for income from certain pass-through businesses like partnerships and S-corporations that report income on individual returns. But the $10,000 cap on individuals meant millions of pass-throughs had a disadvantage, compared to corporations with no deduction limits.

Some states have created workarounds for pass-through business owners. Laws vary among states, but generally they allow pass-throughs to pay a state tax and give individual owners a credit for their share of the payment. These workarounds allow business owners to circumvent the SALT cap, but other individuals are out of luck.

Lawmakers from both parties have sought insight on legislative ways to push back on those workarounds, Thomas Barthold, the Joint Committee on Taxation’s chief of staff, said at January’s 2025 D.C. Bar Tax Conference in Washington.

Corporations include the SALT deduction as part of their tax strategy, and lawmakers will have to be careful to maintain parity when mulling whether to extend the pass-through deduction, said William Beach, senior fellow in economics at the Economic Policy Innovation Center.

“There is a connection between the individual SALT and the corporate SALT,” he said. “I don’t know how you could talk about state and local tax deductions without talking about both sides of the ledger—It’s going to be very complicated.”