Tax Foundation: SALT cap repeal would primarily benefit high-income earners
Passed in 2017, the Tax Cuts and Jobs Act (TCJA), among other things, capped the State and Local Tax (SALT) deduction — the amount of State and Local Taxes paid that filers can claim to reduce their federal tax burden — to $10,000. The Biden Administration is considering repealing this SALT cap, which would be regressive, as the evidence shows.
According to data from the Tax Foundation, completely repealing the SALT deduction cap would increase
the after-tax income of the top 1 percent by about 2.8 percent; the bottom 80 percent would see minimal benefit.”
Raising the cap would result in a similar outcome.
For example, raising the SALT cap to $15,000 single and $30,000 joint would result in a 0.8 percent increase in after-tax income for the 95th to 99th income percentiles and a 0.4 percent increase for the top 1 percent.
High-income earners would receive the majority of the benefits under every option.
Making the SALT deduction more generous would provide most of the tax benefit to the top 20 percent of filers. About 98.5 percent of the benefit for repealing the SALT cap in 2025 would accrue to the top 20 percent of filers, and 62.5 percent of the benefit would accrue to the top 1 percent.
Retaining the SALT cap but increasing it to $20,000 for joint filers or to $15,000 for single filers/$30,000 for joint filers would provide more benefit to those in the 90th to 99th percentiles of income than completely repealing the SALT cap, but either adjustment still mostly benefits higher earners. The bottom 60 percent of earners receive about 0.3 percent of the tax benefit under either option.
Figure: Share benefits for income groups, by each option to relax the SALT cap
| Income Quintile | Repeal $10K SALT Cap | Make SALT Cap $10K Single/$20K Joint | Make SALT Cap $15K Single/$30K Joint |
|---|---|---|---|
| 0% to 20% | 0.0% | 0.0% | 0.0% |
| 20% to 40% | 0.0% | 0.0% | Less than 0.05% |
| 40% to 60% | 0.1% | 0.3% | 0.3% |
| 60% to 80% | 1.3% | 4.5% | 3.4% |
| 80% to 100% | 98.5% | 95.2% | 96.3% |
| 80% to 90% | 4.1% | 14.2% | 10.9% |
| 90% to 95% | 7.2% | 21.9% | 18.3% |
| 95% to 99% | 24.7% | 40.1% | 43.6% |
| 99% to 100% | 62.5% | 19.0% | 23.6% |
| TOTAL | 100.0% | 100.0% | 100.0% |
Certainly, it can be argued that part of this is due to the progressive nature of taxes in the United States. Still, it bears asking why liberals — who tend to be more vocal about expanding the welfare system and taxing the rich — are repealing the cap when it would only benefit high-income earners.
There are better ways to reform the US tax system that could benefit individuals across the board. These include reducing tax rates and eliminating unnecessary credits and deductions provisions that merely worsen complexity, costing taxpayers in lost revenues.