The Tax Cuts and Jobs Act that President Donald Trump signed into law in December 2017 imposed a $10,000 limit on the amount of state and local taxes that can be deducted on a federal income tax return. Since then, this so-called SALT cap has been the subject of a constitutional challenge from New York, New Jersey, Maryland and Connecticut that was turned back by the federal courts, and persistent agitation from elected officials in those and other affluent high-tax states — where many people pay far more than $10,000 in state and local taxes each year — that after more than seven years now seems on the verge of bearing political fruit.
Republican lawmakers from New York, New Jersey and California traveled to low-tax Florida last weekend for a chat with the man who gave us the SALT cap, and it went well. President-elect Trump is “fully supportive of raising the cap,” Representative Mike Lawler of New York reported afterward. “He really communicated that he feels for how unaffordable the taxes are for our constituents,” said fellow New Yorker Nick LaLota.
Taxes may well be unaffordable for some of Lawler and LaLota’s constituents — New York has the nation’s highest state and local taxes, after all. But except among the very highest earners in New York, federal income taxes are not on balance any higher than they were before the SALT cap went into effect. Federal tax rates went down from 2017 to 2018 for every income group except those making $1 million or more a year and stayed below 2017 levels through 2021, the most recent year for which the Internal Revenue Service has released the data. The biggest tax-rate declines were for those with adjusted gross incomes of $200,000 to $500,000, taxpayers who are not exactly middle class but are often portrayed sympathetically in the financial media as HENRYs, for high earners, not rich yet. (I’m ignoring tax filers with adjusted gross incomes of less than a dollar, a small and anomalous group for which tax rates can’t be meaningfully calculated because its aggregate income is negative.)

An increase in the SALT cap would thus be a tax cut on top of a tax cut when the US is already running gigantic budget deficits. It would also deliver all but an infinitesimal residue of its benefits to taxpayers making more than $200,000 a year.
Here’s a new Urban/Brookings Tax Policy Center estimate of who would benefit from increasing the cap to $20,000 for married couples filing jointly, which has the support of some in the incoming Trump administration but is less than Lawler and some other lawmakers have been asking for:

I’m not saying such an increase is by definition a terrible idea — the choice of $10,000 was somewhat arbitrary, the fact that the cap is currently the same for married couples as for individuals penalizes marriage, and simply adjusting for inflation since December 2017 would mean raising the cap to $12,798. Also (disclosure alert!) I live in New York and am pretty sure lifting the cap would reduce my tax bill. But the clamor for SALT relief does seem somewhat detached from the cap’s actual tax consequences. I can think of three main reasons for this:
- Some people in New York and other high-tax states did see their taxes go up because of the SALT cap, especially very high earners who have disproportionate political clout.
- Lots of other people think their taxes went up because of the SALT cap though they didn’t.
- The tax law, and the SALT cap in particular, increased the rewards to high earners of leaving high-tax states for low-tax ones, which is making it harder for high-tax states to hold onto the people who pay their bills.
The reason federal income tax rates went down in high-tax states despite the SALT cap is that its imposition was accompanied in the Tax Cuts and Jobs Act by other changes that for most taxpayers more than made up for it. The most important in this context was the rollback of the alternative minimum tax, which was devised in 1969 to address tax avoidance among a few of the very highest earners but because it wasn’t indexed for inflation was by 2017 limiting deductions for more than 5 million taxpayers, most in the $200,000 to 500,000 income range. The TCJA’s much-bigger AMT exemption and much-higher income threshold at which the exemption begins to be phased out (both of which were indexed to inflation) changed that significantly, with the number of AMT payers in New York falling to just 23,490 in 2018 from 569,610 in 2017.
Among taxpayers making $1 million or more, the decline was less precipitous, with 5,980 AMT payers in New York in 2018 compared with 12,830 the year before — which helps explain why that income group did not get a tax cut in aggregate. There were also still 17,520 New York taxpayers with incomes of less than $1 million who paid the alternative minimum tax in 2018, plus some people with high property taxes but not-so-high incomes who hadn’t paid AMT before TCJA took effect but were adversely affected by the SALT cap afterward. Just because an income group saw its taxes go down doesn’t mean everyone in that group got a tax cut.
Still, I can’t help but suspect that there are also lots of people whose taxes didn’t go up but think that they did. The SALT cap is clear and salient, the AMT opaque and confusing. Also, the 2017 tax law gave the Treasury Department more leeway in determining the amount of taxes withheld from paychecks, which Treasury used in 2018 to reduce overwithholding, thus reducing the number and size of tax refunds. Last year, 60% of respondents told Gallup their federal income taxes were too high, the highest percentage since April 2001.
Finally, the SALT cap led to big relative changes in federal tax rates for high earners depending on where they live. Before the Tax Cuts and Jobs Act, taxpayers with incomes of $1 million or more faced higher effective federal tax rates in Texas and Florida than in New York, Connecticut and California — in part because they paid less in state and local taxes and thus took smaller SALT deductions. After the law took effect, their federal tax rates were lower than those of their peers in high-tax states.

The role of taxes in causing people to move from New York and California to Florida and Texas is often exaggerated — housing costs seem to have been a much bigger driver. But it’s not nothing, and the 2017 tax law thus made it a little harder for states such as New York, Connecticut and California to hold on to the high earners whose income taxes keep their state governments afloat. Any increase in the SALT cap would thus make it a little easier for such states to maintain their high-tax, high-spending ways. This does seem like kind of an odd thing for Republican members of Congress to be fighting for, and for frequent blue-state basher Trump to be agreeing to. Not that anybody in Albany, Hartford, Sacramento, Trenton or Annapolis is going to complain.
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