The State and Local Tax (SALT) deduction was an issue in 2017 as Congress was considering tax reforms. It has re-emerged in 2025 as tax changes are on the table again.
In 2017, the Tax Cuts and Jobs Act of 2017 capped the amount of state and local taxes that can be deducted at $10,000. Before that, the deduction was unlimited. In 2017, President Trump seemed to be leaning toward eliminating the deduction, but resistance to the proposal led to a cap instead of total elimination. In 2025, Trump seems to have switched his position and be in favor of completely restoring the SALT deduction.
The SALT Deduction
As long as we have had a federal income tax, we have had the SALT deduction. In short, if you pay certain types of state and local taxes, the amount of the taxes may be deducted from your federal taxable income. Deductible taxes generally include property, income, and sales taxes, though you can’t deduct both state income and state sales taxes.
We have previously discussed how tax deductions work in more detail. We will briefly look at examples for SALT.
If you file jointly with your spouse and have taxable income of $175,000, you are in the 22% tax bracket. If you pay $8,000 in allowed state and local taxes, your income could be reduced by $8,000 to $167,000. The deduction saves you $1,760 in federal taxes.
If you and your spouse have taxable income of $50,000, you are in the 10% tax bracket. The same $8,000 state and local tax bill would save you only $800.
As with all deductions, benefits inherently favor high income groups. At the very least, we should convert the SALT deduction to a credit worth 10% (the lowest tax bracket rate) of the state and local taxes paid. We, however, believe there are other basic problems with it.
The Standard Deduction
In 1944, Congress added the standard deduction to the tax code. While there are many deductions in the tax code, keeping track of all of those can be overwhelming. Theoretically, a taxpayer could list (“itemize”) all of they deductions she is allowed to take on her tax return.
For small taxpayers with small deductions, that effort may very well exceed the value of the deduction. The standard deduction is an amount that may be deducted instead of going through the effort to itemize every deduction. For tax year 2025 (returns filed in 2026), the standard deduction for a couple filing jointly is $30,000. This may change, depending on Congressional action on tax reform this year.
A couple with $50,000 of income, taking the standard deduction, would have taxable income of $20,000. Likewise the couple with $175,000 of income would see taxable income reduced to $145,000.
You can only claim the SALT deduction if you itemize your deductions. If you use the standard deduction, that essentially covers any SALT deduction you would be eligible for.
According to the Tax Policy Center, prior to the 2017 tax law made substantial changes to the standard deduction. The 2017 tax law increased the standard deduction for 2018 from $13,000 to $24,000 for married couples. The standard deduction is adjusted for inflation each year and has grown from the $24,000 in 2018 to (as noted above) $30,000 for tax year 2025.
Impact on the SALT Deduction
With the large increase to the standard deduction in 2018, more people could use the standard deduction instead of itemizing. In 2017, about 70% of taxpayers used the standard deduction, meaning only about the top 30% of income earners would ever use the deduction. For tax year 2020, 90% of taxpayers used the standard deduction, meaning only the top 10% of earners would even reasonably have the option to use the SALT deduction.
In general, the SALT deduction heavily favors higher income individuals. When we consider the impact of the standard deduction, the SALT deduction becomes pretty much exclusively a high income earner benefit.
General Fairness Issue with SALT Deduction
The SALT deduction has a more fundamental fairness issue. Assume we have two families who itemize, so they are almost certainly high income families. One family lives in New York City. The other lives in Alaska. In all respects, the families are the same as far as the tax code is concerned.
Equal treatment of these two families would require that they pay the same tax to the federal government. The SALT deduction, though, would have the New York taxpayer almost certainly get a larger one than the Alaska taxpayer. This is fundamentally unfair. The taxing decisions of the state and locality where you live should not impact your federal tax.
Proposed Changes
We oppose continuation of the SALT deduction for the reasons we have outlined above. We also favor tax policy that reduces tax rates as much as possible, in favor of broadening the tax base.
To that end, we would propose the following changes in the tax code.
- Eliminate the State And Local Tax deduction
- Reduce the tax rate for the 37% bracket to 36%
- Reduce the tax rate for the 35% bracket to 34%
- Reduce the tax rate for the 32% bracket to 31%
- Reduce the tax rate for the 24% bracket to 23.5%
- Leave the tax brackets below the 24% bracket unchanged; they are not typically using the SALT deduction
The political winds seem to be in favor of removing the cap on the SALT deduction, so itemizing taxpayers would be able to deduct all state and local tax amounts. We consider restoration of the full SALT deduction to be the baseline we are working with, instead of the current capped SALT deduction. We expect the elimination of the SALT deduction to raise more revenue than the rate reductions would offset.
This proposal would be better tax policy by reducing tax rates. It would also be fairer tax policy by having similarly situated Americans bear the same tax obligation, regardless of where they live in the country.