Donald Trump is a convert.
The tax law he signed as president in 2017 put a $10,000 cap on state and local tax deductions, part of a scheme to shift revenue around so the tax law could meet congressional budget targets. Democrats representing wealthy coastal states complained that the cap was a de facto tax hike for many of their constituents since it killed lucrative deductions.
Trump now seems to agree, and he says he wants to eliminate the cap on so-called SALT deductions that he signed into law seven years ago.
Trump and his Democratic rival, Vice President Kamala Harris, are pitching voters a smorgasbord of feel-good policies that will never happen because they’d require a unified Congress to pass legislation. But the SALT cap is different. There’s a pathway to repealing the cap once the next Congress gets to work in 2025.
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Before the SALT cap went into effect in 2018, tax filers could deduct either state and local income and property taxes or sales taxes from their federal income tax with no limit. For some filers, the deduction knocked thousands of dollars off their federal tax bills. The deduction was worth more to wealthier taxpayers with higher taxes, who tend to live in Democratic strongholds such as New York and California. But it helped taxpayers in every state, including parents paying high property taxes to live in good school districts.
The 2017 tax law was a Republican plan with no Democratic support — and its backers claimed that other changes would offset the new limit on SALT deductions. The law lowered tax rates for most individual filers, for example. It nearly doubled the standard deduction and reduced the number of people subject to the alternative minimum tax. While the 2017 law raised taxes for about 6% of Americans — partly because of the new limit on SALT deductions — it lowered taxes for about 65%.
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Yet Democrats have sought to repeal the SALT cap ever since it became law, and there’s one big factor on their side: The cap, along with most of the tax cuts for individuals, expires at the end of 2025. Most of the business tax cuts in the 2017 law are permanent, but Senate rules limited the amount the law could add to the national debt, so Republicans chose to make the individual cuts temporary. Part of their calculus was the belief that political pressure would force a renewal of the individual tax cuts as they were due to expire.
We’ll soon find out if they guessed right.
Trump wants to make all the tax cuts permanent and go further by ending the SALT cap. Harris wants to let tax cuts for wealthier individuals expire while keeping the lower tax rates in place for every household earning $400,000 or less.
She hasn’t taken a position on the SALT cap, probably because repealing it would benefit wealthier Americans the most and look like a sop to 1 percenters. But if congressional Democrats could get it passed, it’s hard to imagine a President Harris would veto something that would benefit her Democratic colleagues and their constituents.
The battle over the expiring tax cuts will be the biggest political brawl of 2025, and it depends not just on who wins the White House. The makeup of Congress will matter too. The best scenario for a full repeal of the SALT cap would be a Harris win with full Democratic control of Congress, according to Beacon Policy Advisers. That would put New Yorkers who favor full repeal in charge of both the House and the Senate.
There could be full repeal under divided government, too, given that Democrats would have some leverage to force a compromise deal that extends some of the tax cuts, with the SALT provision gone. Congress could also raise the cap to $20,000 or some other number that partially restores some of the prior benefits. The odds of eliminating the cap would be lowest under a Republican sweep, given that congressional Republicans who passed the cap in the first place want to keep it that way.
Eliminating the cap would be expensive, one reason most Republicans want to leave it in place. Going back to full deductibility of state and local taxes would add more than $200 billion per year to the deficit, which means it would vie with other tax-cut priorities.
Some policy analysts think Congress should go the other direction and end this deduction completely because it’s a “regressive” tax break that mainly benefits wealthier Americans. But you won’t hear that from anybody running for office in 2024.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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