MW Trump, GOP tweak SALT cap. Here's what to know about the controversial tax break.

By Chris Matthews

A generous SALT deduction could face stiff resistance in the Senate

One of the most important sticking points in negotiations about President Donald Trump's signature tax-and-spending bill is how generous to make the deduction for state and local taxes.

The latest reported proposal is to allow a $40,000 SALT deduction for families with up to $500,000 in income, after which the benefit is phased out. Those levels would increase over 10 years, so that they would level off at $44,000 and $552,000 after 10 years.

Here's what you need to know about the SALT cap and whether it will benefit you or your business.

What is the SALT cap?

Before 2017, Americans could deduct all the taxes they paid to state and local governments from the income they reported to the federal government.

The SALT deduction has been part of the federal income tax code since its inception in 1913, and is often cited as the first deduction written into law.

When Republicans capped the amount individuals and pass-through businesses - which pay taxes at the individual level - at $10,000 in 2017, it was a radical move that raised trillions in new revenue, mostly from taxpayers in states that elect more Democrats than Republicans.

This helped pay for a permanent cut in the headline corporate tax rate from 35% to 21% and many temporary tax breaks for individuals. Those individual cuts are set to expire at the end of this year, which is why Congress is hard at work to pass a bill that would extend those lower levels of taxation.

Republicans had a large majority in the House of Representatives in 2017, and were able to pass this controversial measure without the support of members from high-tax states like New York and California, whose constituents benefit most from the deduction.

Twelve Republican House members voted against President Trump's 2017 tax bill, largely because of the changes to the SALT deduction, including New York Rep. Elise Stefanik, recently a member of House GOP leadership.

Why is it such an issue for Trump's new tax bill?

The 2017 tax bill made the corporate tax cut permanent, but made changes to the individual tax code temporary. That means the cap on SALT expires next year, reverting to its prior unlimited status.

Meanwhile, Republicans have a much slimmer majority in the House this time around and can afford to lose just four votes if they hope to pass legislation with no support from Democrats.

This gives Republicans like Reps. Mike Lawler, Andrew Garbarino, Nick LaLota and Stefanik, all from New York, significant leverage in these negotiations. Several of them are from swing seats as well, enabling them to make the argument that Republicans owe their House majority to them.

Garbarino described his situation bluntly in a recent interview with Punchbowl News.

"If I vote for a cap that I can't sell at home," the Republican said, "I might as well just pack up my office now."

Who will benefit from a higher SALT cap?

The exact details of the new SALT proposal aren't yet available, but it's likely that the existence of the phaseout means that the benefits would largely go to upper-middle-class families in high-tax jurisdictions.

An analysis conducted by the Tax Foundation for MarketWatch showed this structure would lead to families between the top 40% of earners to the top 5% of earners would see their taxes go down, while those earning more would actually see their taxes rise slightly.

Benefits would likely be geographically concentrated.

In 2022, even with the $10,000 cap in place, only 453 of 3,144 counties had higher-than-average SALT deduction claims, and those counties were concentrated in California and the Northeast.

The following map from the Tax Policy Center illustrates that geography.

Who will lose out?

The broader Republican tax plan's benefits skew toward the rich, according to analyses from the Congressional Budget Office and other expert organizations.

But the SALT modifications under discussion would actually lead to the very wealthy paying a bit more, because of the phaseout provision and because the legislation will likely bar state-level loopholes that allowed owners of pass-through businesses to deduct state taxes as a business expense.

Many states changed their laws after 2017 to enable state income and property taxes to be levied at the entity level, rather than on personal tax returns, so state taxes could be deducted as a business expense on federal returns.

The Tax Policy Center estimated this saved businesses $20 billion annually, but the GOP bill, as currently written, bars these practices.

What's next?

The Trump tax bill still has a long road ahead of it before becoming law. Republicans hope to pass their version of the bill before Memorial Day, but it would then have to be approved by the Senate.

Senate Republicans are nowhere near as enthusiastic about raising the SALT cap, as there are few of them representing high-tax states. They could look to save money by making the deduction less generous than in the House version.

That could lead to a contentious battle between the House and Senate as they must eventually reconcile two versions of the same law before sending it to Trump's desk for his signature.

Senate Majority Whip John Barrasso of Wyoming said Wednesday that his fellow Republicans in the upper chamber see the SALT cap hike as a necessary evil to win a majority of votes in the House.

"There's not a single senator who is impacted by SALT," the No. 2 Senate Republican said at a Washington, D.C., event hosted by law firm BakerHostetler. "That's an area where we understand their situation, but we don't have that same pressure or problem. We have other issues with other members that we've got to focus on."

- Victor Reklaitis contributed

-Chris Matthews

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May 21, 2025 13:52 ET (17:52 GMT)

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