With bill text released May 12th, House Ways and Means Committee Republicans are moving forward on a proposal to raise the State and Local Tax (SALT) deduction cap to $30,000 for households with incomes under $400,000. 

The SALT cap has been a major roadblock as the GOP seeks to extend expiring pieces of the 2017 Tax Cuts and Jobs Act (TCJA) and enact other parts of President Donald Trump’s tax agenda including exempting tips, overtime pay, and Social Security benefits from federal income taxes.  Lawmakers representing districts hardest hit by the TCJA’s $10,000 cap had wanted to let it expire on schedule at the end of the year or raise the cap. But that would make it harder to stay within the House budget framework of $4.5 trillion in tax cuts overall (dropping to $4 trillion if other committees achieve less than $2 trillion in spending cuts). 

TPC previously estimated that raising the SALT cap to $20,000 (or $40,000 for married filers)—without an income cap—would cost the federal government roughly $600 billion over ten years relative to a baseline of current law plus extending other major TCJA provisions. More than half of that proposal’s benefit would go to taxpayers making $400,000 or more, so adding the $400,000 income limit goes a long way towards bringing down the cost of the SALT cap increase.

The May 12th bill text also limits the “pass-through entity workaround” that many states introduced after TCJA. It allows owners of pass-through businesses to receive an offsetting state income tax credit, so their combined individual and business-level state tax bill stays the same but they can benefit from the full federal SALT deduction for PTE taxes paid. Fully closing this workaround would save roughly $20 billion a year, according to TPC estimates.

But raising the cap to $30,000 would still primarily benefit high-income taxpayers. As TPC updates its tax model analysis to reflect the May 12th proposal, consider what we know already about which communities benefit most from the SALT deduction based on IRS data. 

Prior to the cap, in 2017, the average SALT deduction was around $13,000 nationwide and below $15,000 in most counties. Less than a third of all taxpayers who claimed the SALT deduction lived in counties where the average SALT deduction exceeded $15,000. 

In fact, in 2017, the average SALT deduction exceeded $30,000 in only eight counties: New York County (Manhattan); Marin County, CA; San Mateo County, CA; Western Connecticut (county-equivalent); Santa Clara County, CA; Westchester County, NY; San Francisco County, CA; and Teton County, WY. (Table 1) 

Of course, average SALT deduction claims (adjusted for inflation) declined almost every part of the country as a result of the TCJA cap (and the law’s other changes, including increases in the standard deduction.) But the number of counties with above-average SALT claims increased from 213 in 2017 to 453 in 2022. 

A higher SALT cap would further concentrate benefits in a smaller number of communities. The map below illustrates how and where.

Further, prior to TCJA the SALT deduction was limited by the Alternative Minimum Tax (AMT). But under the newly proposed cap, no AMT limitations like that exist.

There is an argument that the SALT deduction benefits not only the taxpayers who claim it but the communities where they live. However, researchers have had a hard time detecting these local “spillovers” of federal tax policy. And the evidence shows that states most affected by the TCJA’s SALT cap were not the ones that cut income taxes over the last three years.

Congress has other options to address the expiring SALT cap, and at a lower price tag. For example, in addition to imposing an income limit on the SALT deduction, as TPC colleagues have previously suggested, lawmakers could address so-called marriage penalties, or the fact that both the current $10,000 cap and the proposed $30,000 cap would apply equally to individual tax filers and married couples filing jointly. More modestly raising the cap for individual filers and doubling that cap for couples filing jointly could be a better use of scarce dollars.

But as it stands, increasing the SALT cap to $30,000, even with an income limit, would be expensive and deliver little benefit to most taxpayers.