As Senate Republicans unveil details of President Donald Trump’s spending package, the federal deduction for state and local taxes (SALT) remains a critical point of negotiation. The Tax Cuts and Jobs Act (TCJA) of 2017 imposed a $10,000 limit on the SALT deduction, impacting taxpayers who itemize deductions. This cap is set through 2025, contrasting with previous unlimited deductions, though reduced by the alternative minimum tax for some high earners.
The Senate Finance Committee’s proposed text maintains a $10,000 SALT deduction cap, differing from the $40,000 cap approved by House Republicans. This discrepancy highlights the ongoing debate and negotiation required to reach a consensus.
The SALT deduction cap has been contentious since 2017, especially for lawmakers from high-tax states like New York, New Jersey, and California. These states’ representatives wield significant influence in negotiations due to the slim House Republican majority.
Currently, taxpayers who itemize cannot exceed a $10,000 SALT deduction, which creates a “marriage penalty” for joint filers. Proposals to raise the cap are controversial, with benefits primarily flowing to higher-income households. Approximately 90% of filers use the standard deduction, thus unaffected by itemized deductions.
The 2017 SALT cap was designed to offset other TCJA tax breaks, with some lawmakers supporting the lower limit for fiscal balance. Senate Majority Leader John Thune expressed limited interest in altering the SALT cap, emphasizing the need for a compromise that secures necessary votes in the House.
House Republicans, such as Rep. Mike Lawler and Rep. Nicole Malliotakis, have opposed the Senate’s proposed $10,000 cap, advocating for a higher limit to reflect the interests of their constituents. This opposition underscores the complexity of reaching a bipartisan agreement on SALT deductions.
