Impact on High-Tax States
The proposed increase would provide relief to millions of taxpayers in states with higher local tax burdens. Residents in coastal states and metropolitan areas have been disproportionately affected by the existing cap, often paying thousands more in federal taxes since the 2017 tax reform was implemented.
Representatives from these high-tax states have consistently pushed for SALT cap modifications, arguing that the current limitation amounts to double taxation and unfairly penalizes their constituents.
Phase-Out Provision Details
A key element of the new proposal is the phase-out threshold at $500,000 in income. This means taxpayers earning above this amount would see diminishing benefits from the increased cap, eventually losing the deduction entirely at higher income levels.
This graduated approach appears designed to address criticisms that SALT deduction benefits primarily flow to wealthy taxpayers. By implementing a phase-out, lawmakers aim to target relief mainly toward middle- and upper-middle-class families, while limiting benefits for the highest earners.
Budget Implications
The Congressional Budget Office has not yet released cost estimates for the revised proposal. However, tax policy experts note that raising the cap will reduce federal revenue compared to maintaining the current $10,000 limit.
The previous $30,000 cap proposal was estimated to cost approximately $150 billion over a ten-year period. The new $40,000 threshold is likely to increase this fiscal impact, although the phase-out provision may offset some of the additional cost.
Budget hawks have expressed concern about the revenue implications, particularly as the federal deficit continues to grow. Supporters counter that the deduction simply restores fairness to the tax code for residents of states that contribute disproportionately to federal coffers.
Political Landscape
The SALT cap has created unusual political alliances, with some progressive Democrats joining moderate Republicans from high-tax states in supporting its increase or elimination. Meanwhile, fiscal conservatives and some progressives have found common ground in opposing changes, though for different reasons.
The provision faces an uncertain path in the Senate, where different regional interests and budget priorities could lead to further modifications. Several senators have already signaled that the House proposal may need adjustment to secure broader support.
The timing of this proposal coincides with Congress’s efforts to address numerous tax provisions set to expire in the coming years, creating a complex legislative environment for tax policy changes.
As the proposal moves through the legislative process, taxpayers in high-tax states will be watching closely to see if this increased relief from the SALT cap limitation ultimately becomes law.
