One of the thorniest points emerging in President Donald Trump‘s massive tax and spending bill is the state and local tax deduction, also known as SALT.
In the “big beautiful bill,” there is a provision that will temporarily lift the SALT deduction from $10,000 to $40,000 for households with an income of $500,000 a year.
The SALT deduction was capped at $10,000 during Trump’s first term by the Tax Cuts and Jobs Act of 2017. The new bill allows people to deduct up to $40,000 per year from their federal taxes. However, the bill would return to the $10,000 cap after five years.
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“The $40,000 threshold is not a benefit for middle-income or average Americans in any state,” Adam Michel, the director of tax policy studies at the Cato Institute, told FOX Business. “For most Americans, especially those in low- and middle-income brackets or in states with lower taxes, it does very little, or nothing.”
Preston Brashers, a tax policy research fellow at the Heritage Foundation, told FOC Business a higher SALT cap “will do nothing for 90% of U.S. taxpayers.”
Brashers explained that the SALT deduction is a claim that middle-class Americans typically do not file on their federal taxes.
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He added that the provision, largely praised by lawmakers from high-tax blue states, is set to overwhelmingly benefit high-income households.
“A $40,000 SALT cap would allow blue cities and states on the coasts to pawn off a portion of their high taxes on the rest of us,” Brashers told FOX Business.
“Like splitting the restaurant tab with the rest of the party after ordering the filet mignon, a higher SALT subsidy will force taxpayers in the rest of the country to pick up more of the federal tab whenever places like California or New York City raise their taxes.”
“High-tax states and cities will have more room to raise taxes because part of the cost will be moved onto the federal government,” David Ditch, a senior fiscal policy analyst at the Economic Policy Innovation Center, told FOX Business.
Ditch said states like New York, New Jersey and California are the best positioned to benefit from increases to the SALT deduction cap.
“At a time of high debt and unsustainable deficits, Congress would be using scarce resources to reward a few high-tax areas at the expense of everyone else,” he said.
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The Committee for a Responsible Federal Budget (CRFB) says increasing the SALT cap reduces revenue and disproportionately benefits taxpayers in high-tax, high-income states.
The CRFB says that by eliminating the SALT deduction for individuals and businesses, Congress could find more than $1 trillion in savings.
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“This is an incredibly economically inefficient deduction that we have within the tax code,” E.J. Antoni, chief economist at the conservative-leaning Heritage Foundation, told FOX Business’ Stuart Varney.
“By essentially eliminating that cap again, what you are going to do is return to a situation where the rest of the country is helping to foot the bill for those high-income earners in very few locations.”
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