Workers sort income tax returns at the state Franchise Tax Board in Sacramento on April 18, 2017. Some political leaders want to remove the $10,000 cap on how much local and state taxes people can deduct on federal tax returns. (AP/Rich Pedroncelli)
- The SALT deduction cap, part of Trump's 2017 tax overhaul, disproportionately affects high-tax states like California and New York.
- A California study estimates the SALT cap costs state taxpayers $12 billion annually, with the wealthy bearing most of the burden.
- Trump's promise to repeal the SALT cap puts him in agreement with Democratic leaders Schumer and Pelosi, creating an unusual alliance.
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More often than not, the two major political parties directly oppose each other on major issues, which explains why those issues tend to linger, unresolved, for years or even decades.
Dan Walters
CalMatters
Opinion
Occasionally, however, there are issues that deviate from the partisan pattern, creating odd-bedfellows alliances. One of them is a 2017 overhaul of federal income taxes that, among other things, limited deductions of state and local taxes — known as SALT in political and media circles — to $10,000.
The tax legislation included many other provisions, including a big expansion of the standard deduction to offset the SALT limit, and it’s regarded as former President Donald Trump’s major achievement.
From the onset, the deduction cap was more a geographic issue than a partisan one, because it had its greatest effect on states with lots of high-income taxpayers and high-income tax rates, especially New York and California.
Leaders of those two states were vocal in their opposition, claiming that the cap on deductions was devised by Trump and other Republicans as punishment for left-leaning politics. It would, the critics said, encourage wealthy taxpayers to move to low- or no-income tax states such as Nevada, Texas and Florida to escape the indirect increase of their tax payments.
California’s Financial Hit from SALT Cap
A 2018 study by the California Franchise Tax Board — the state’s primary tax collection agency — concluded that the SALT deduction limit would cost Californians an estimated $12 billion a year in higher payments, with three-fourths of that falling on Californians with incomes of $1 million or more and the remainder on taxpayers with taxable incomes of $100,000 to $999,999.
The high-income communities clustered around San Francisco Bay saw the greatest impact. In Santa Clara County, for instance, the average tax return with itemized deductions reported outlays of $46,817.53 in state and local taxes, but could deduct just $8,931.28 due to the SALT limit.
Democrats weren’t the only critics, however. Republican leaders in California and New York also opposed the SALT cap.
Meanwhile, the 2017 legislation’s increase in the standard deduction — now nearly $30,000 on joint federal tax returns — benefitted many middle-income taxpayers who didn’t have more than $10,000 in deductible state and local taxes.
Political Maneuvering and Strange Bedfellows
New York and California political leaders in Congress, such as Senate Majority Leader Chuck Schumer and Nancy Pelosi, the long-time speaker of the House, vowed to undo the deduction limit, but it has survived.
All of the provisions of the 2017 tax legislation will expire at the end of 2025, but Trump is now vowing that if he returns to the White House, he will press for immediate repeal of the deduction limit.
“I will turn it around, get SALT back, lower your taxes and so much more,” he pledged on his Truth Social website last week.
That promise puts Trump on the same side of the issue as Schumer and Pelosi, strange bedfellows indeed. “As long as I’m leader, when the state and local deductibility (cap) expires, it will be gone,” Schumer responded to Trump’s new position.
However, what Trump, Schumer, Pelosi and other political figures in high-tax states want is now drawing fire from the left, contending that repeal or expiration would be a financial windfall for the wealthy.
A study by the Tax Policy Center, a center-left think tank, found that repeal “would cut 2025 taxes by an average of more than $140,000 for the highest-income 0.1 percent of families but provide little or no help to low- and middle-income households.”
The SALT debate once again proves that what is taxed and how much is levied is a purely arbitrary — and therefore very political — process.
About the Author
Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times. CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more columns by Dan Walters, go to calmatters.org/commentary.
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