As Congress continues to debate changes to the State and Local Tax (SALT) deduction cap, new analysis shows that blue states would receive the lion’s share of the benefits if the cap were raised from $10,000 to $25,000.
Three states alone would capture 53% of the total tax relief from a SALT cap increase: California, New York, and New Jersey, according to the state-by-state impacts of a SALT cap increase.
In total, $41.5 billion, or about 78.2% of the benefits, would flow to 68 million tax filers in blue states that voted Democratic in the 2024 presidential election.
In contrast, just $11.6 billion would go to 89 million tax filers in red states, which amounts to just 21.8% of the benefit.
National Taxpayers Union Foundation Executive Vice President Joe Bishop-Henchman wrote the report. He said it’s clear the SALT deduction rewards poor fiscal management by state and local governments.
“This is a stark illustration of how raising the SALT cap disproportionately favors high-income earners in high-tax states,” Bishop-Henchman said. “Policymakers must consider whether it’s good policy to allow federal tax policy to insulate residents from their own states' high tax decisions.”
Congressional negotiations around the SALT cap have stalled, with several House Republicans from high-tax states, Reps. Andrew Garbarino (NY), Tom Kean (NJ), Young Kim (CA), Nick LaLota (NY), and Mike Lawler (NY), expressing dissatisfaction with proposals to more than double the cap.
The SALT deduction was capped at $10,000 per filing couple under the 2017 Tax Cuts and Jobs Act (TCJA), replacing a complex interaction between the SALT deduction, the Alternative Minimum Tax, and the Pease limitation on itemized deductions. TCJA also doubled the standard deduction, dramatically reducing the number of itemizing taxpayers from 30% before TCJA to less than 10% today.
With the TCJA set to expire at the end of 2025, discussions about the future of the SALT cap are gaining urgency. However, the benefits of raising the cap would be narrowly concentrated. Of the 239 million tax filers, only 23.7 million (9.9%) itemize their deductions. If the SALT cap were repealed entirely, 93% of the resulting tax benefit would go to households earning over $200,000 annually.
Proponents argue that easing the SALT cap would relieve taxpayers from excessive state and local taxes, but critics question whether it is appropriate for federal policy to subsidize the tax choices of state and local governments. As Congress considers possible changes, policymakers will need to balance equity, regional disparities, and fiscal responsibility.