“Unfortunately, increasing the [SALT] cap gives local governments permission to raise taxes even further.”The former Republican leader of the House Ways and Means Committee, Kevin Brady
Calls to remove the cap on state and local tax deductions were pushed back Wednesday by the man who drafted Donald Trump’s 2017 tax code. He claimed that doing so would merely cause local Democrats in blue states to raise taxes, lessening the economic benefits of a lower federal tax regime.
The remarks were made at a press conference hosted by the Alliance for Competitive Taxation. Kevin Brady, a former Texas representative who chaired the House Ways and Means Committee and was the primary congressional architect of the 2017 tax-reform law during Trump’s first term as president, made the remarks. Brady currently serves as a strategic advisor for the organization, which promotes reduced corporate taxation.
The maximum deduction that taxpayers can claim on a federal tax return for state and local taxes paid, including state income-tax levies and property taxes, was set at $10,000 by Trump and congressional Republicans. Previously, the permitted deduction had no upper limit. Republicans’ tax cuts for corporations and many people in late 2017 were partially financed by that cap.
The Committee for a Responsible Federal Budget estimates that the SALT cap will raise federal revenues by roughly $1.2 trillion over a ten-year period. However, Republican lawmakers from high-tax states like California and New York, as well as Connecticut, New Jersey, and Illinois, have not been happy about the tax increase.
Trump pledged to remove the SALT cap during his 2024 campaign, but he provided no details on how to fund the adjustment, even though he signed the measure into law.
The data regarding the direct impact of federal tax policy changes on state and local tax levels is conflicting. These governments have attempted to implement workarounds that allow pass-through companies and individuals to deduct a portion of their tax expenses.
Following the SALT cap modification, some states have even implemented tax increases. For example, New York increased taxes for high incomes in 2021, and Minnesota increased taxes on corporations and high earners in 2023 while decreasing taxes on middle-class taxpayers.
However, according to a Tax Foundation analysis, most states have lowered taxes recently, using federal stimulus funds from the pandemic. This supports the idea that federal tax policy can influence state and local governments.
With the smallest majority in nearly a hundred years, Republicans are assuming control of the House of Representatives. Any measure that is anticipated to receive a party-line vote, like tax reform, will allow them to lose no more than three GOP votes.
Because the SALT cap would be completely removed if the 2017 tax cuts are permitted to expire at the end of this year, analysts anticipate that lifting the cap will have to be a part of any agreement in order to gain the backing of Republicans from high-tax areas.
Brady stated that he thinks Republicans will reach an agreement to maintain support for an extension of the Trump tax plan from various segments of the GOP coalition.
Brady claimed that congressional leaders and the Trump administration are “having conversations with those Republicans with high tax states.”
“They’re going to reach consensus on how to move forward there, but certainly capping the deduction at $10,000 created the revenue that allowed us to finance small-business and middle-class tax cuts in a significant way,” he said. Revenue will be significantly impacted by raising that. Tax writers are aware of this, but I have faith that we will ultimately reach an agreement.
