As policymakers consider potential federal taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy changes in the “big, beautiful bill,” a major point of debate continues over the state and local tax (SALT) deduction limit. Policymakers should avoid making the SALT cap more generous as the package is finalized in the House.

The SALT deduction has seen significant changes since 2017. That year, the Tax Cuts and Jobs Act (TCJA) limited the deductible total of state and local taxes to $10,000 for tax years 2018 through 2025 to help offset some of the cost of the tax cuts. Taxpayers who itemize may deduct state and local taxes, such as state income or sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.  plus state and local property taxes, against federal taxable income up to that $10,000 limit.

Additionally, the TCJA doubled the standard deduction, reducing the number of itemizers from about a third of taxpayers to about 9 percent.

The SALT deduction cap is scheduled to expire along with the TCJA’s other individual tax changes at the end of this year.

The SALT deduction cap had different impacts on taxpayers across the US, reflecting differences in state and local taxes and costs of living. Higher-income taxpayers in high-tax locations are most impacted by the SALT cap. Any changes to lift the cap would primarily benefit higher earners and make the tax code more regressive.

The House bill could have made the existing deduction cap permanent. The $10,000 cap would raise $981 billion over 10 years to help offset the cost of other tax cuts, while mostly impacting the top 20 percent of earners (see Table 1 below).

In the spirit of compromise, the tax plan raises the SALT cap to $30,000 for most taxpayers and creates new income limits for those earning over $400,000, providing a $175 billion tax cut over 10 years compared to the current cap, raising $807 billion over 10 years. This design would provide a full SALT deduction for well over 90 percent of taxpayers in the most impacted areas of the country, while also making permanent the other TCJA tax cuts.

Some policymakers are proposing an even bigger SALT deduction, perhaps to upward of $62,000 for single filers and $124,000 for joint filers.

There are several problems with this demand. First, the revenue math does not work.

Take the recent proposed deal to raise the cap to $40,000 for all filers. With a $500,000 income phaseout threshold and a gradual increase in the cap over ten years, this proposal would cost about $320 billion on its own compared to an extension of the existing cap, and $150 billion compared to the $30,000 cap currently in the tax package, raising about $660 billion over 10 years on a conventional basis.

The bill is already suffering from a math problem, as the tax cuts add up to over $4 trillion, and spending cuts have been pared back. This is a recipe for worsening deficits at a time when Congress needs to be more concerned about the country’s fiscal outlook.

Second, beyond the fiscal impact, the SALT caucus—a group of House members demanding a more generous SALT deduction—has framed the debate as a fairness issue. But that neglects some inconvenient facts. First, taxpayers with limited SALT deductions often couldn’t deduct that same SALT prior to the TCJA because of the stricter alternative minimum tax (AMT).

Most taxpayers also saw a net tax cut from the TCJA, even when accounting for the SALT cap. The cap was just one aspect of the package—the lower rates and brackets, expanded child credit, and smaller AMT, among other items, add up to net tax savings for all but the highest of earners.

Distributionally, only very high earners would benefit from a higher SALT cap (see Table 2). Even with an income phaseout for taxpayers earning over $500,000, the top 20 percent of taxpayers would be the only group to meaningfully benefit. Under a $40,000 cap with a $500,000 income limit, earners in the 95^th to 99^th income percentiles would see a 0.6 percent relative increase in after-tax income compared to the existing House proposal; the bottom 80 percent of earners would see no benefit.

A more generous SALT cap could increase the long-run growth effect of the package, but it would also increase the fiscal cost unless it was offset by other changes in the bill. Proposals to make the SALT deduction more generous but offset the cost with tax hikes, like raising the top rate, would be counterproductive for the net economic benefits of the package.

Whichever direction lawmakers choose, the SALT deduction’s design should be made stable and predictable for taxpayers through a permanent solution.

Letting the SALT cap slip further upwards would undercut the TCJA’s long-term legacy, worsening the fiscal outlook of the tax package and providing an unneeded benefit to higher earners. Rather than expanding the SALT deduction, lawmakers should consider holding the line at the current $30,000 design or even limiting it further to pay for broader reforms to the tax code.

Table 1. Conventional Revenue Effect of SALT Deduction Cap Options, Billions of Dollars

Source: Tax Foundation General Equilibrium Model, May 2025.

Table 2. Distributional Effect of Various SALT Cap Options (Stacked After May 12 Legislation Excluding SALT), Percent Change in After-Tax Market Income

Note: Market income includes adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income.
For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods (AGI) plus 1) tax-exempt interest, 2) non-taxable social security income, 3) the employer share of payroll taxes, 4) imputed corporate tax liability, 5) employer-sponsored health insurance and other fringe benefits, 6) taxpayers’ imputed contributions to defined-contribution pension plans. Market income levels are adjusted for the number of exemptions reported on each return to make tax units more comparable. After-tax income is market income less: individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source, corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax., payroll taxes, estate and gift taxA gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax., custom duties, and excise taxes. The 2026 income break points by percentile are: 20%-$17,735; 40%-$38,572; 60%-$73,905; 80%-$130,661; 90%-$188,849; 95%-$266,968; 99%-$611,194. Tax units with negative market income and non-filers are excluded from the percentile groups but included in the totals.
Source: Tax Foundation General Equilibrium Model, May 2025.

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