To help pay for the "giant, beautiful, massive” tax cut promised by President Donald Trump, Republican lawmakers in Washington aim to reduce or eliminate the deduction for state and local taxes that some people use when calculating what they owe in federal taxes. SALT, as it’s known, is an expensive and treasured middle- and upper-middle-class break that benefits the 30 percent of filers who itemize their returns rather than take a standard deduction. The issue may test the loyalties of Republicans representing high-tax states, like New York and New Jersey.
1. What are the current proposals in Congress?
Under the bill passed by the House, federal taxpayers would no longer be able to take itemized deductions for the money they paid for state and local income taxes or for sales taxes. They could still deduct what they paid in state and local property taxes, but only to a maximum of $10,000 a year. The Senate bill would repeal the SALT deduction entirely.
2. What adjustments are being considered?
Republican Senator Susan Collins of Maine wants to retain the SALT deduction for property taxes up to $10,000 a year, as the House bill would. Senator Ron Johnson, a Wisconsin Republican, wants the Senate to repeal the SALT deduction for corporations and use that added revenue to pay for another change he’s advocating -- further lowering the tax bills of partnerships, limited liability companies and other so-called pass-through businesses. Collins and Johnson both hold at least some sway, since Republicans need 50 votes for their bill and hold 52 seats in the Senate.
3. Who’s most affected by the SALT deduction?
Its benefit flows mainly to residents of high-tax states, which tend to be heavily (though not entirely) Democratic. In New York, a person who makes $1 million may end up paying $120,000 in state and local taxes, which, if deducted, could save $48,000 in federal taxes, estimates Robert Willens of New York-based Robert Willens LLC.
4. Could the SALT dispute stand in the way of a tax bill?
Possibly. Though Collins has raised concerns over the SALT issue, it would take three Republican "No" votes to defeat the bill in the Senate. In the House, which passed its version of the tax-cut bill by a vote of 227 to 205, 12 out of the 13 Republicans who voted "No" were from high-tax states. Any final bill, resolving differences between the House and Senate, would need to go before both chambers one more time.
The Reference Shelf
- A Bloomberg interactive graphic shows average SALT deduction by congressional district.
- A QuickTake Glossary on key terms in the tax cut debate.
- The framework for tax cuts released by the White House in September.
- Studies by the Congressional Budget Office on eliminating or limiting the SALT deduction.
- A 2015 report by the Congressional Research Service on the issue.