From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.
Among many problems with the “One Big Beautiful Bill” passed last week by House Republicans is that it would increase the cost and regressivity of the State and Local Tax (SALT) deduction. The bill would increase the SALT cap from the $10,000 it is today to $40,000 for households making under $500,000, with all thresholds continuing to grow for the next decade. Congressman Mike Lawler (R-N.Y.), one of the House GOP’s biggest advocates for expanding SALT, triumphantly declared after the bill’s passage that “for the middle class, this is a real win.” But in reality, the main beneficiaries of the change will be the affluent — not the middle class.
To even benefit from the increased SALT deduction, one has to itemize deductions on their tax return rather than take the standard deduction. But only about 10% of taxpayers do so, typically higher-income households that have enough deductions (like SALT, mortgage interest, or charitable giving) to make itemizing worthwhile. The remaining 90% — including most middle-class and nearly all lower-income Americans — take the standard deduction, which is currently $15,000 for single filers and $30,000 for married couples.
As a result, it is primarily wealthy households that would benefit from a more generous SALT deduction. According to one analysis, a $40,000 SALT cap with a $500,000 income limit would most benefit households in the 95th to 99th income percentiles (the 95th percentile starts at approximately $316,000 in household income) who would see a 0.6% boost in after-tax income when compared to the current cap. Meanwhile, the bottom 80% of earners would see no meaningful benefit. Supporters may claim that the income cap reins in the regressivity of the deal, but in practice, it simply reorders which wealthy Americans are benefitting. While the ultra-wealthy are excluded under the income cap, extremely high-income professionals and upper-tier earners would still enjoy a sizable tax break that they hardly need.
Moreover, Republicans’ SALT deal is an expensive addition to a bill that already adds more than $3 trillion to the deficit. Relative to an extension of the $10,000 cap put in place by the Tax Cuts and Jobs Act, the Republican plan would cost an additional $320 billion over ten years. Even relative to the previous SALT change in Republicans’ original legislative text — which would have raised the cap to $30,000 with a $400,000 income limit — the plan still costs an additional $150 billion.
Supporters of raising or repealing the SALT cap claim that regardless of these downsides, it would be fundamentally unfair for the federal government to levy income taxes on money that is being used to pay state taxes. But this argument completely ignores that such practice is commonplace in the tax code. The federal government does not exempt payroll taxes before calculating income tax burdens, nor do states allow homeowners to deduct property taxes before calculating their other state tax obligations. Multiple layers of taxation are hardly a unique or unfair burden no matter what SALT defenders claim.
The Senate should reject this expensive and regressive SALT expansion and replace it with something more fiscally responsible. Even better, they should add restrictions for business SALT deduction to the bill, which currently faces no limitations. The justification for why businesses should be able to deduct their state and local income taxes from federal income taxes is just as weak as the argument for individuals.
No matter what Republicans clinging to districts in places like New York, New Jersey, and California say, the reality is that raising the SALT cap isn’t middle-class tax relief — it’s a costly giveaway to affluent households in a bill that already blows up the budget deficit far more than can be afforded. Congress should kill this SALT deal and replace it with a fiscally responsible alternative.
A recent analysis by the nonpartisan Joint Committee on Taxation (JCT) finds that economic growth induced by the Republican tax plan would raise only $103 billion of additional revenue over 10 years — well short of the claimed $2.5 trillion. Notably, this estimate doesn’t factor in the damage the “One Big Beautiful Bill’s” massive deficits would do to economic growth, which the JCT warns will result in larger revenue losses over time.
