The future of the state and local tax (SALT) deduction cap may play a pivotal role in the 2025 tax debate — and Representative Josh Gottheimer (D-NJ) is “incredibly optimistic” about where lawmakers will land.
After taxpayers were allowed for years to deduct property, sales, and income taxes paid to state and local governments, the 2017 Tax Cuts and Jobs Act (TCJA, P.L. 115-97) set a temporary limit on those deductions. Specifically, the TCJA revised Code Sec. 164(b) by limiting the deduction to $10,000 per taxpayer, or $5,000 for married individuals filing separately.
The so-called SALT cap applies for tax years 2018 through 2025. It was added to the TCJA to pay-for the deficit-increasing provisions in the law — many of which will also expire by the end of 2025. But with Republicans looking to extend many costly TCJA provisions, the SALT cap might again be eyed as an option to offset those costs.
Gottheimer told Checkpoint he expects SALT to be “front and center” in the 2025 tax policy debate. The current cap is “a huge burden on middle class families” in high SALT tax states like New Jersey, he explained.
Lawmakers will all have their tax priorities, Gottheimer explained, and for him, the “top of the list is fully restoring SALT.”
SALT Caucus.
Gottheimer is not alone. He explained that Republicans from high SALT states like California, Illinois, Michigan, and New York “ran on this issue” and he imagines they will “fight very hard to restore SALT.”
The bipartisan SALT Caucus, co-chaired by Gottheimer along with Representatives Young Kim (R-CA), Andrew Garbarino (R-NY), and Tom Suozzi (D-NY), counts among its returning members eight Republicans from California, New Jersey, and New York.
In addition to Garbarino and Kim, the Republican House members we can expect to hear from during the SALT cap debate include Mike Garcia (R-CA), Tom Kean (R-NJ), Nick LaLota (R-NY), Michael Lawler (R-NY), Nicole Malliotakis (R-NY), and Marc Molinaro (R-NY).
The SALT Caucus also includes over 20 Democrats from those states — as well as from Connecticut, the District of Columbia, Illinois, and Minnesota.
With a razor-thin Republican majority in the House going into the next congressional session, Gottheimer told Checkpoint, “You could see how many of us coming together and standing together in a bipartisan way, like in the SALT Caucus, could have a lot of influence.”
What SALT reform might look like.
While Gottheimer is advocating for full restoration of the SALT deduction, that’s not the only option being tossed around. Other proposals include increasing the cap or doubling the deduction amount for taxpayers filing jointly. In fact, the House-passed version of the 2022 Inflation Reduction Act would have increased the cap to $80,000 through 2031.
Indivar Dutta-Gupta, a fellow at the Roosevelt Institute and Georgetown University’s McCourt School of Public Policy, cautioned Senate Finance Committee members back in September that “without a cap, without other features, a SALT deduction can disproportionately go to very high income families.” But he added that the SALT deduction “certainly can be reformed in ways that ensure that benefits flow only to working- and middle-class families.”
Dustin Stamper, a managing director in Grant Thornton’s Washington National Tax Office, said, for him, it was a bell curve — with the possibility of the cap going away altogether on one end and staying as-is on the other. The middle, and more likely option, he said, was getting some relief from the SALT cap via an increase in the cap. But “all options are probably still possible,” he added.
An outsized influence.
With Republicans’ narrow majority in the House, “a small group … can have a lot of influence if they’re willing to block legislation unless they get what they want,” according to Stamper.
Just 12 Republicans voted against the TCJA — all but one were from California, New Jersey, or New York. With much slimmer margins than in 2017, Republicans will need to get almost all of their colleagues from SALT states on board to pass a tax bill.
President Joe Biden faced a comparable situation with the 2022 Inflation Reduction Act. Gottheimer and other Democrats from SALT states initially opposed the Senate’s trimming of SALT relief from that bill. They released a statement in January 2022 saying, “No SALT, no deal.”
By August 2022, however, SALT state Democrats were swayed. Gottheimer and others conceded that “the Inflation Reduction Act actually reduces costs for families in our districts, making energy, prescription drugs, and healthcare significantly more affordable.” They approved the bill despite its failure to address the SALT cap.
Whether SALT state Republicans are similarly willing to budge during the 2025 tax debate remains to be seen. But even if they are, President-elect Donald Trump may challenge a tax bill that does not address the SALT cap.
Trump’s promise.
On the campaign trail Trump vowed to “get SALT back” — which many have taken as meaning he supports ending the SALT cap.
Stamper said Trump sometimes “speaks so off-the-cuff that it’s hard to say how much commitment he has” to eliminating the SALT cap. “But there’s a lot of Republican members with districts in high-tech states or blue states that hate the SALT cap and have been pushing Republicans to do something about it,” said Stamper. “So they’ll be under pressure.”
Some SALT Democrats also will be holding Trump to his promise. Representative Pat Ryan (D-NY) and Gottheimer said in a November letter to Trump that they “are eager to capitalize on this stated common ground and swiftly overturn this double taxation.”
Ryan said in a press release, “I’m taking Trump at his word that he wants to permanently lift the cap, and am calling on him to immediately start working in good-faith with both Democrats and Republicans.”
The bottom line.
The real puzzle will be working out how to extend the TCJA tax cuts without extending the SALT cap.
The Committee for a Responsible Federal Budget has said that extending the TCJA’s expiring individual and estate tax provisions for a 10-year period would cost $3.9 trillion, excluding interest. However, doing so without also extending the SALT cap would increase deficits by $5.1 trillion.
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