The SALT Deduction.

Today we’re diving into one of the most contentious tax battles happening in Washington right now—the State and Local Tax deduction (SALT). Now, if you’ve been hearing politicians talk about “tax relief for hard-working homeowners” or “supporting middle-class families,” you might think this sounds pretty good, right?

But here’s the thing— like so many tax policies that sound great on the surface, the SALT deduction is actually one of the most regressive tax breaks in our entire system. We’re talking about a policy that overwhelmingly benefits wealthy households while doing absolutely nothing for the majority of Americans. And right now, Congress is debating whether to make this tax break even more generous.

Now, full disclosure, I live in a part of New York with extremely high property tax assessments. It’s a cookie cutter, middle class neighborhood that looks a lot like every other suburban development across the country. Homes built in the 1960s and ‘70s during the height of suburban sprawl. Splits down one block. Center halls down another. Ranches over there. And my property taxes are anywhere from two to five times the average for a similar home in most states. So I theoretically stand to benefit from the recent change to the SALT in the new GOP budget act. I’m part of a tiny fraction of Americans who would theoretically reap the benefit of lifting the cap while not qualifying as a top income earner. Alas, ‘tis not to be so. C’est la vie.

I offer this disclaimer because even though at first glance I would benefit from lifting the cap, I recognize the absurdity of fighting for it tooth and nail as many Democrats in Congress did. Ah, betchya thought I was going to say Republicans didn’t you? They’re in on it too, but the much bigger battle over lifting the cap on deductions was fought behind the scenes under Biden by high profile Democrats like Chuck Schumer, Nancy Pelosi and Bob “Gold Bar” Menendez, with support from lesser know Democrats who might as well be Republicans like Tom Suozzi and Josh Gottheimer. This time around, it went through without a fight.

If it sounds boring or confusing, I’ll do my best to make sure it’s neither as we break down how a century-old tax policy became a massive subsidy for the rich, why it was limited in the first place, and who’s really fighting to bring it back. In the end, the SALT cap fight is just more salt in the wound of the middle class.

See what I did there?

What Is the Salt Deduction?

Let’s start with the basics. The State and Local Tax deduction has been part of our tax code for over 100 years. The idea was simple: if you pay taxes to your state and local government, you shouldn’t have to pay federal taxes on that same income again. Sounds fair, right?

Here’s how it works: If you itemize your deductions instead of taking the standard deduction, you can write off certain state and local taxes you’ve paid. This includes state income taxes, local income taxes, property taxes on your home, and even sales taxes in some cases. Before 2018, there was no limit; you could deduct every penny you paid in state and local taxes.

But here’s where it gets interesting. To use this deduction, you have to itemize, which means your total itemized deductions need to be higher than the standard deduction. For 2024, that standard deduction was $14,600 for single filers and $29,200 for married couples. So you need to have some serious tax bills to make itemizing worth it.

And that’s our first clue about who this really benefits. The Tax Foundation’s data shows that before the recent changes, about one-third of taxpayers itemized their deductions. But after the 2017 tax reforms doubled the standard deduction, that number plummeted to just 9.5% of taxpayers. Who are these 9.5% of people? Predominantly higher-income households with expensive homes and big tax bills.

The 2017 Shake-up

Now let’s talk about what changed everything: the Tax Cuts and Jobs Act of 2017, signed by President Trump. This was a massive overhaul of our tax system, and buried in those changes was a provision that would spark years of political warfare: the $10,000 cap on SALT deductions.

Why did Republicans do this? It wasn’t just to be mean to high-tax states, though that was definitely part of the political calculation. The SALT cap was designed to help pay for other tax cuts, particularly the massive corporate tax reduction from 35% to 21%. They needed revenue from somewhere, and limiting SALT deductions provided about $98 billion over 10 years.

But there was also a policy argument: the unlimited SALT deduction was essentially a federal subsidy for high state and local taxes. Think about it this way—if you live in a high-tax state like New York or California, the federal government was effectively reducing your tax burden by letting you write off those state taxes. This meant that taxpayers in low-tax states like Texas or Florida were, in effect, subsidizing the government services in high-tax states.

The $10,000 cap was meant to level the playing field. Others, like the politicians I mentioned at the beginning, saw it differently. To them, this was a giant “fuck you” to blue states. And for Democrats who rely on fundraising from the rich in these states, it sure was.

And the data shows this worked exactly as intended. According to the Bipartisan Policy Center, 40 of the top 50 congressional districts most affected by the SALT cap are in just four states: California, Illinois, New Jersey, and New York. These are predominantly wealthy suburban districts in blue states with expensive homes and high property taxes.

The reaction was swift and predictable. Wealthy homeowners in these areas saw their federal tax bills go up, sometimes by thousands of dollars. Property values in some high-tax areas actually declined as the tax benefits of living there diminished. Some people even started calling it the “blue state tax,” because it predominantly affected Democratic-leaning areas with higher state and local taxes.

Who Really Benefits?

Now let’s get to the heart of the matter: who actually benefits from SALT deductions? The answer is overwhelmingly clear: wealthy households.

According to the Tax Foundation’s analysis, under the current $10,000 cap, only the top 20% of earners see any meaningful impact. But here’s where it gets really stark: if we raise that cap to $40,000, as currently laid out in the new Trump budget, even with income limits for those earning over $500,000, the benefits still flow almost entirely to high earners.

Let’s break this down by the numbers. Under a $40,000 SALT cap with a $500,000 income phaseout:

• The bottom 80% of earners see zero benefit
• Earners in the 95th to 99th income percentiles—that’s households making roughly $267,000 to $611,000—would see a 0.6% increase in their after-tax income
• Meanwhile, families making under $50,000 a year? They get nothing.

Why is this happening? It comes down to basic math. To benefit from SALT deductions, you need three things:

• First, you need to pay enough in state and local taxes to exceed $10,000 (or whatever the cap is).
• Second, you need enough other deductions to make itemizing worthwhile.
• And third, you need to be in a high enough tax bracket for the deduction to provide meaningful savings.

The Institute on Taxation and Economic Policy puts it bluntly: “The main beneficiaries of increasing the cap will be a small fraction of higher-income, higher-wealth households who own one or more expensive houses.” They note that property taxes on vacation homes are deductible too, even if they’re in another state.

Who’s Lobbying for This?

So who’s pushing to expand these deductions? The answer tells you everything you need to know about who really benefits.

Leading the charge is something called the “SALT Caucus,” a bipartisan group of House members from high-tax states. Representatives like Josh Gottheimer from New Jersey, Young Kim from California, and Mike Lawler from New York have been some of the most vocal advocates. Notice a pattern? These representatives come from some of the wealthiest districts in America.

But it’s not just politicians. The real estate industry has been quietly but consistently lobbying for SALT relief. Why? Because higher SALT deductions make expensive homes in high-tax areas more attractive to wealthy buyers. The National Association of Realtors and various state real estate organizations have supported expanding the deduction.

Wealthy taxpayers themselves have been advocating through various channels too. High-income individuals who saw their tax bills jump after 2017 have been vocal about the “unfairness” of the SALT cap. They’ve framed this as a middle-class issue, but the data simply doesn’t support that claim.

What’s particularly interesting is how this issue scrambles normal partisan lines. You have some Democrats arguing for what is essentially a tax cut for the wealthy, while some Republicans from low-tax states oppose it because they see it as subsidizing big government in blue states.

President Trump himself flip-flopped on this issue. After implementing the cap in 2017, he promised during his 2024 campaign to “get SALT back,” a clear appeal to wealthy voters in suburban districts that had turned against Republicans partly due to the SALT cap.

The Renter Reality Check

Here’s something that really drives home how regressive this policy is: it completely ignores renters. And this isn’t a small group we’re talking about. According to recent data, about 35% of Americans rent their homes. In many major cities, that number is much higher.

Think about this: if you’re a renter paying $3,500 a month for an apartment in New York or San Francisco, you’re indirectly paying property taxes through your rent. This is true everywhere, but the point is that even in the blue state cities, renters get zilch from this tax change. Your landlord’s property tax bill is built into what you pay. But you get zero federal tax benefit from this.

Meanwhile, if you own a $2 million home in the same neighborhood, you can deduct up to $40,000 (under current proposals) of your property taxes and state income taxes from your federal tax bill. This is a direct wealth transfer from renters to homeowners, and from lower-income families to higher-income families.

The Institute on Taxation and Economic Policy notes that property taxes are actually more burdensome relative to income for lower-income homeowners than for wealthy ones. But the tax code rewards the wealthy homeowners while providing nothing for struggling families.

This gets even more perverse when you consider that many renters are young people trying to save up for their first home purchase. They’re essentially subsidizing tax breaks for people who already own expensive properties, making it even harder for them to join the ownership class.

The Fiscal Reality

Let’s talk numbers, because the fiscal impact of expanding SALT deductions is enormous. According to the Tax Foundation’s analysis, raising the cap to $40,000 with a $500,000 income phaseout would cost about $320 billion over 10 years compared to keeping the current $10,000 cap.

To put that in perspective, that’s more than the entire annual budget for the Department of Education. It’s roughly equivalent to what we spend on food stamps over five years. We’re talking about a massive expenditure that would flow almost entirely to households that are already well-off.

And this comes at a time when we’re facing serious fiscal challenges. The current tax package being debated already adds over $3 trillion to the deficit according to various estimates. Adding another $320 billion for SALT expansion makes the fiscal math even more challenging.

Think of the opportunity cost in a zero based scenario. That $320 billion could fund universal pre-K, expand the Child Tax Credit for working families, invest in infrastructure, or reduce the deficit. Instead, we’re considering using it to reduce tax bills for people who are already doing quite well.

Income Bracket Breakdown

Let’s get specific about who wins and loses under different SALT scenarios. The Tax Foundation has done detailed modeling on this, and the results are stark.

Under the current $10,000 cap:

• Taxpayers earning under $200,000 see virtually no impact
• Those in the 80th–90th percentiles (roughly $130,000–$189,000) see a small negative impact
• The biggest impact is on earners in the 95th–99th percentiles—those making $267,000 to $611,000

Under a $40,000 cap with income limits:

• The bottom 80% of earners still see zero benefit
• Earners between $200,000-$500,000 see the biggest gains
• Those making over $500,000 are phased out, but they’re often the ones who can afford tax planning strategies to work around the limits

Here’s a concrete example: Take a married couple in New Jersey making $400,000 a year. They pay $25,000 in state income taxes and $20,000 in property taxes. Under current law, they can only deduct $10,000 of that $45,000 total. Under the proposed $40,000 cap, they could deduct $40,000, saving them potentially $10,500 in federal taxes assuming a 35% marginal rate.

Meanwhile, a working family making $60,000 a year sees absolutely no benefit from this change, even though they’re struggling with inflation and housing costs just like everyone else.

Bring It Home, Max

So there you have it. The SALT deduction in all its regressive glory. What started as a reasonable policy to prevent double taxation has become a massive subsidy for wealthy homeowners in expensive areas.

The next time you hear a politician talking about SALT “relief,” remember: they’re not talking about relief for renters, relief for first-time homebuyers, or relief for families struggling to make ends meet. They’re talking about relief for people who own expensive homes in wealthy suburbs. Even for the tiniest fraction of people like me living in upper middle class areas, it has no impact because most of us can’t reach the threshold to make it meaningful.

It’s another hand job for Republicans but make no mistake, the Democrats have a hand in this one too. Sorry to be crass, but that’s the fact, Jack.

Here endeth the lesson.