The SALT cap, which was put into place in 2017 and is set to expire after 2025, limits the federal deduction for state and local income, sales and property taxes to $10,000 per federal return.
While proposing to make most of the 2017 tax reform changes permanent, President-elect Donald Trump has also proposed eliminating this cap on the deduction for state and local taxes (the so-called “SALT cap”) entirely.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about Trump’s plan to eliminate the SALT cap deduction.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Byrnes
Bloink
Their Reasons:
Byrnes: The SALT cap is one of the more controversial aspects of the 2017 tax reform legislation. The cap on state and local tax deductions blatantly favors taxpayers living in low-tax states at the expense of taxpayers in higher- and moderate-tax states. Since tax reform was passed, the SALT cap has been so controversial because it creates significant inequality between taxpayers living in low-tax and high-tax states. Removing the SALT cap would serve to reduce that inequality.
Bloink: Removing the SALT cap entirely would significantly reduce the positive economic impact that President-elect Trump claims to be able to achieve through proposals to make certain other aspects of the 2017 tax reform legislation permanent. When it comes to revenue-raising initiatives, we can’t really have it both ways. If we want to eliminate the SALT cap entirely, we have to question the viability of maintaining the tax cuts that Trump handed to the wealthiest Americans in 2017.
Byrnes: The SALT cap creates perverse incentives for taxpayers to waste valuable resources in order to relocate solely to find a taxing state where they would have lower state and local level tax liability. Removing that cap eliminates the incentive for taxpayers to choose their state of residence solely based on tax issues.
Bloink: The $10,000 SALT cap, while controversial on many levels, was imposed for a very specific reason. The cuts for wealthy taxpayers imposed under the 2017 law had to be offset by additional limitations on tax deductions. The SALT cap is designed to reduce the overall cost of the 2017 tax cuts. If we want to make those cuts permanent — or as permanent as anything in the tax code can be — we have to focus on the practical impact of removing the SALT cap.
Byrnes: We’re forgetting that the deduction for state and local taxes itself is permitted for an entirely reasonable purpose — create fairness and prevent double taxation. Allowing the full deduction for any state and local taxes paid would restore fairness and prevent situations where taxpayers are being subject to double taxation.
Bloink: While the SALT cap isn’t technically a percentage increase, those with higher incomes and higher property values obviously pay more in state and local taxes than more moderate-earning families. Trump claims that he can now remove the SALT cap that his own tax reform legislation created. While it’s perhaps now possible that he can keep his campaign promise given GOP control of the House and Senate, removing the SALT can’t happen in a vacuum. Congress must weigh the economic impact of both removing the SALT cap entirely and allowing the wealthiest taxpayers to keep their 2017 tax cuts.
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