Senate Republicans' proposed tax bill has sparked criticism from lawmakers in high-tax states, including New Jersey and New York. The bill maintains a $10,000 cap on the state and local property tax deduction, known as the SALT deduction. This decision contrasts with the U.S. House of Representatives' version of the bill, which sets the cap at $40,000 for those earning up to $500,000 annually.
The SALT deduction was initially capped at $10,000 under the 2017 Tax Cuts and Jobs Act. Critics argue that this cap disproportionately affects residents in Democratic-leaning states with high property taxes such as New Jersey, California, and New York.
The SALT deduction allows taxpayers to reduce their taxable income by subtracting state income taxes and local property taxes paid. It has been part of federal tax policy since 1913. The current cap is set to expire at the end of this year alongside other provisions from the 2017 tax bill.
The 2017 legislation also increased other deductions significantly. According to the nonpartisan Tax Policy Center, it nearly doubled the standard deduction for individual filers from $6,500 to $12,000 and for joint returns from $13,000 to $24,000. Marc Pfeiffer from Rutgers University noted that while these changes increased standard deductions, they reduced allowable deductions for state and local taxes.
Progressives like Sen. Bernie Sanders criticize the SALT deduction as benefiting wealthier households. A report by the Tax Foundation indicated that lifting the SALT cap would primarily benefit households earning between $200,000 and $500,000. The Committee for a Responsible Federal Budget warned that removing the cap would be "costly, distortionary and regressive."
Peter Chen from New Jersey Policy Perspective stated that most households do not pay over $10,000 in state and local taxes. He argued that lifting the cap would mostly benefit higher-income individuals.
Supporters of maintaining or raising the SALT deduction argue it benefits middle-income homeowners despite larger savings going to wealthier individuals. The Institute on Taxation and Economic Policy reported in 2021 that most beneficiaries in New Jersey had average incomes up to $216,000.
Josh Gottheimer emphasized last year that restricting the SALT deduction impacted middle-class workers like "cops, firefighters and teachers," framing it as a "middle-class issue."
