Congress Debates SALT Deduction Changes Amid Budget Concerns

Washington, D.C. – Congressional leaders are locked in heated debate over proposed adjustments to the State and Local Tax (SALT) deduction, a key provision affecting millions of taxpayers and federal revenue. The current SALT deduction cap stands at $10,000, a limit set by the 2017 Tax Cuts and Jobs Act (TCJA), but House and Senate Republicans are pursuing divergent paths to reform.

Senate Republicans are considering lowering the SALT cap adjustment, aiming for a new limit between $20,000 and $25,000, and reducing the Modified Adjusted Gross Income (MAGI) threshold to $300,000–$350,000. This approach is projected to reduce the federal deficit by $50–75 billion, reflecting concerns about the fiscal impact of a higher SALT cap. The Congressional Budget Office warns that raising the cap would decrease federal revenue and increase the deficit, with benefits primarily accruing to high-income earners in high-tax states such as New York, New Jersey, and California.

In contrast, the House version of the fiscal year 2025 budget bill, the One Big Beautiful Bill Act (OBBB), proposes to quadruple the SALT cap to $40,000 for individuals earning below $500,000, phasing down for those above that income level. This change is estimated to increase deficits by approximately $377 billion over a decade compared to extending the current cap. The House bill also includes other tax reforms, such as increasing the standard deduction and enhancing the child tax credit.

Supporters of the higher SALT cap, including many House Republicans from high-tax states, argue that it provides essential tax relief for their constituents and is crucial for securing passage of broader tax legislation. However, critics contend that the deduction disproportionately benefits wealthy taxpayers and encourages state and local governments to increase taxes, undermining broader tax reform efforts and economic growth.

With budget talks intensifying, the SALT deduction issue remains unresolved. The debate highlights broader concerns about the federal deficit and national debt, with interest costs projected to reach $1.8 trillion. As both chambers work to reconcile their differences, the outcome will significantly impact federal tax policy and the nation’s fiscal trajectory.