Households making $1 million or more a year would receive half the benefit of repealing the $10,000 federal cap on the state and local tax (SALT) deduction, according to new estimates by the Tax Policy Center. Seventy percent of the benefit would go to those making $500,000 or more.

At the same time, 96 percent of middle-income households, those making between about $52,000 and $93,000 annually, would get no tax reduction at all. The 4 percent that would benefit would receive an average tax cut of about $400.

By contrast, 93 percent of those making $1 million or more would get a tax cut, averaging about $48,000.

The TPC analysis includes the interaction between the SALT cap and the individual alternative minimum tax (AMT). Because the AMT disallows the SALT deduction, TPC estimates that repealing the  cap would increase the number of taxpayers subject to AMT by more than a half a million. The increased AMT revenue would offset about one-sixth of the revenue loss from repealing the SALT cap.  

The SALT deduction cap was included in the 2017 Tax Cuts and Jobs Act. Ever since, Democrats from high-tax states have been trying to get it repealed. House members from New York and New Jersey recently said they would oppose President Biden’s $2.2 trillion infrastructure plan unless it ended the SALT cap.

Republicans, many from low-tax states whose high-income residents were less affected by the limit, have resisted the SALT cap repeal, insisting it is regressive. While progressivity has not  been a high priority for many GOP lawmakers, the TPC analysis shows that in this case they are right.

The TPC analysis looks only at the distribution of the tax cut itself. Supporters of repeal say the cap constrains state and local government spending, much of which benefits low- and moderate-income residents. Evidence of the cap’s impact on state spending is mixed and further complicated by the COVID-19 pandemic.