What is SALT? Making sense of the spicy tax fight that’s holding up the GOP’s ‘big, beautiful bill.’
Everyone knows that too much salt can spoil a dish. On Tuesday morning, President Trump publicly made the case that too much SALT could also spoil the “big, beautiful bill” that Republicans are currently working feverishly to get passed through Congress.
SALT in this case is short for the state and local tax deduction, a little known but heavily debated provision in the tax code that has been one of the thorniest issues within the GOP as it tries to reach a consensus on a sprawling legislative plan filled with trillions of dollars in tax cuts and big funding reductions to programs like Medicaid and federal food assistance.
How does SALT work?
As with any tax policy, the details get complicated. But the main thing the SALT deduction does is allow taxpayers to use the taxes they pay to state and local governments to lower their taxable income on their federal tax forms. So someone who makes $150,000 in a year but uses SALT to deduct $10,000 of what they paid in state and local taxes is treated as if they actually made $140,000 when it comes to their federal tax liability.
The premise of the SALT deduction is to prevent double taxation and offer relief to people who live in states and cities with particularly high income, property and sales taxes.
For a long time, there was no limit on the SALT deduction, so taxpayers could deduct 100% of the state and local taxes they paid from their federal income. That made it one of the country’s biggest tax breaks — resulting in as much as $100 billion in lost revenue per year. Currently, though, SALT deductions are capped at $10,000 thanks to a provision in the massive tax and spending bill that Republicans passed during Trump’s first term. That change, combined with an increase in the standard deduction that was included in that same bill, has dramatically decreased the number of people who take advantage of the SALT deduction.
Historically, the SALT deduction has overwhelmingly helped rich Americans living in high-tax (mostly Democrat-led) states. That’s because they are the ones who carry the heaviest tax burden and, unlike the vast majority of taxpayers, they earn enough that it makes sense for them to itemize their tax deductions rather than take the standard deduction.
Before the cap was put in place, it was estimated that 91% of the benefit went to people with an income over $100,000 in just six states: California, New York, New Jersey, Illinois, Texas and Pennsylvania. With deductions limited to $10,000, SALT is still used “almost exclusively” by high earners, but they are getting a much, much smaller benefit than they used to.
What’s the disagreement about?
The SALT cap is set to expire at the end of this year. So if Congress does nothing, it’d effectively be handing a $100 billion annual tax break to rich Americans in the wealthiest parts of the country. Though it doesn’t get a lot of attention on the national stage, SALT is a very big deal to members of Congress who represent those areas, because their constituents have a huge amount of money riding on where the level gets set.
SALT is the rare issue that doesn’t fit the typical partisan dynamics. Republicans usually like tax cuts, but most of the party opposes it because the benefits are concentrated in rich, blue districts. Some progressive Democrats, usually loath to offer relief to the rich, like it for the same reason.
Democrats from well-off parts of California, New York and New Jersey tried, and failed, to get the cap repealed. Now some Republican House members from those same states, knowing that a full repeal is unlikely, have dug in their heels to try to get it raised — with some proposals calling for lifting it to as high as $200,000 for married couples. While they only make up a small share of the Republican caucus, there are just enough of them to potentially block the entire spending bill from passing if they refuse to vote for it as a group.
Where do things stand now?
The initial draft of the tax portion of the “big, beautiful bill” would bump up the SALT cap to $30,000, with a crucial new restriction that limits the benefit to those making less than $400,000 per year. If that were to become law, it would mean an additional $915 billion in tax revenue for the federal government over the next decade compared with a scenario where the cap was allowed to expire, according to new estimates from the Congressional Budget Office.
That proposal is not generous enough for a handful of GOP representatives, who have purportedly threatened to sink the whole bill if the cap isn’t raised even more.
Trump reportedly told members of the self-proclaimed “SALT caucus” that he’s losing patience with them, scolding them to “forget SALT” in a closed-door meeting on Capitol Hill on Tuesday. He later told the media that he’s opposed to generous SALT deductions, arguing that “the biggest beneficiaries” would be Democratic governors from “very blue states.” It’s unclear from his comments whether he wants the proposed $30,000 cap lowered or simply doesn’t want it to be increased.
Despite Trump’s powerful influence within the GOP, his statements may not be enough to win over the SALT holdouts. Five of them released a joint statement on Tuesday afternoon arguing that “a fair SALT deduction is a matter of fundamental fairness for the hardworking families we represent.” It remains to be seen whether this small group can leverage bigger concessions that will convince them to back the spending plan, or if Trump and the party as a whole can somehow get them on board.
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Yahoo!News
