Former President Donald Trump is proposing the removal of the $10,000 cap on state and local tax (SALT) deductions, a policy he originally signed into law as part of his 2017 tax reforms.

Trump has suggested that this move, if he returns to office, could benefit taxpayers in high-tax states like New York and California, as it would reverse a cap that has sparked debate among policymakers and economists over its impact on both high- and middle-income taxpayers, as Fox Business reports.

The $10,000 cap was a key component of the Tax Cuts and Jobs Act (TCJA) passed in 2017, which was designed to simplify the tax code and reduce rates for individuals and corporations.

Prior to the introduction of this cap, taxpayers could deduct the full amount of their state and local taxes, which included property taxes, without any limit.

The current cap is set to expire at the end of 2025, but Trump’s recent statements suggest he would aim to remove it sooner.

Critics Say Cap Hurts Middle Class Homeowners

The SALT cap has been widely criticized by lawmakers from high-tax states such as New York, New Jersey, and California. These critics argue that the cap disproportionately impacts homeowners who face higher property taxes, particularly in the middle class. Some have also described the cap as a "marriage penalty," affecting couples more than individual taxpayers.

Efforts to repeal the cap have surfaced in Congress, but so far, they have failed to gain enough traction. Earlier this year, there was a push to remove the SALT cap, but the initiative stalled.

Economists and financial experts remain divided on whether removing the cap would be beneficial or not. Mitch Roschelle, a partner at Madison Ventures Plus, argues that eliminating the cap would help stem the population exodus from high-tax states. He pointed out that many residents of states like New York and California have been relocating due to the financial burden of non-deductible property taxes.

Economists Divided Over Economic Impact

Roschelle believes that restoring the SALT deduction would also address housing demand issues in these states, calling it "a game changer" for the housing market in certain blue states. "People were fleeing those states... because of the lack of ability to deduct," he stated.

However, not all experts agree with Roschelle's assessment. Economist EJ Antoni from the Heritage Foundation argues that the SALT deduction is economically inefficient. Antoni noted that the deduction primarily benefits high-income earners in a few high-tax states and shifts the financial burden to the rest of the country.

"This is an incredibly economically inefficient deduction," Antoni explained, highlighting that its benefits are limited to high-income households. He also praised Trump's original decision to implement the cap, saying, "Kudos to President Trump when he signed the tax reform under his first administration, where they actually imposed that limit."

Trump’s Rationale for Reversing SALT Cap

Trump, who touted the 2017 tax reforms as one of his administration's major achievements, now appears to be rethinking the SALT cap in the lead-up to the 2024 election. The former president posted on Truth Social, urging, “Get SALT back, lower your taxes, and so much more.” His suggestion is likely aimed at winning over voters in states where the SALT cap has been a source of frustration for homeowners and taxpayers.

The political implications of the proposal are significant. High-tax states such as New York, New Jersey, and California are traditionally Democratic strongholds, and removing the SALT cap could be a strategic move to appeal to voters in these areas.

SALT Cap Set to Expire In 2025

Currently, the SALT cap is scheduled to sunset in 2025, meaning that unless Congress takes action, it will disappear automatically. Despite this, many lawmakers and experts argue that immediate action is necessary to address the economic concerns raised by the cap.

While Trump has not provided specific details on how he would eliminate the cap, the conversation around SALT deductions is likely to continue as the 2024 election approaches. For now, both sides of the debate remain firm in their positions, with those in favor of removing the cap focusing on its potential benefits for taxpayers in high-tax regions, and opponents warning of its inefficiency and impact on federal revenues.

Conclusion

Trump’s proposal to remove the $10,000 SALT deduction cap has reignited a longstanding debate about the fairness and efficiency of the current tax code.

While some argue that eliminating the cap would provide relief for homeowners in high-tax states and slow population loss, others believe it would disproportionately benefit the wealthy at the expense of other taxpayers.

As the SALT cap is set to expire in 2025, this issue is expected to remain a key talking point in the lead-up to the next presidential election.