On Thursday, economic advisers to President-elect Donald Trump discussed potentially increasing the state and local tax (SALT) deduction limit, which could notably benefit residents of high-tax states like New York, New Jersey, and California. The proposal under consideration would raise the cap from the current $10,000 to $20,000. The SALT deduction has been a significant topic since Trump's 2017 tax-cut legislation restricted it, leading to bipartisan efforts to expand the deduction, particularly in regions where it has a substantial impact.
Stephen Moore, a member of Trump's economic advisory transition team, indicated to Bloomberg that the team is not in favor of an unlimited deduction, which some politicians from New York and New Jersey have requested, arguing it would primarily serve the wealthiest. Instead, Moore suggested that doubling the current limit could address concerns for middle-class families in predominantly Democratic states. The decision on whether to apply the $20,000 limit universally or maintain the $10,000 cap for individual filers has not been finalized. Any amendments to the SALT deduction would require Congress's approval.
The irony of the situation is not lost, as the very administration that curtailed the SALT deduction is now considering its expansion. The move comes ahead of the expiration of significant elements of Trump's tax law at the end of 2025. With Republicans set to control Congress and the White House, there is an opportunity to reshape the tax law, including the SALT provisions. However, the issue is contentious within the party, with some Republicans opposing expansion due to its impact on other tax cuts and its lesser value in lower-tax regions.
The narrow majority in the House could force concessions on SALT to secure the necessary votes from Republicans representing districts where the deduction is highly valued. Representative Mike Lawler, a Republican from New York, has stated his refusal to back any tax legislation that does not address the SALT cap. As the debate continues, the future of the SALT deduction remains a key point of negotiation in the broader context of tax law reform.
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