The Case for Repealing the SALT Deduction Cap Entirely

Tax fairness is not merely a budgetary concern, it is a question of federal integrity. At issue is the State and Local Tax deduction, or SALT, a provision that permits taxpayers to deduct state and local taxes from their federal taxable income. On its surface, the policy appears a harmless instrument of relief, shielding citizens from the indignity of double taxation. But as with many policies crafted in a more balanced age, SALT has evolved into a sophisticated mechanism of cross-subsidization, one that favors high-tax states, often Democrat-run, at the direct expense of fiscally restrained, low-tax states like Texas, Florida, and Tennessee. The issue has come roaring back into political focus because a group of House Republicans from New York are now holding President Trump’s 'big beautiful bill' hostage, refusing to advance his legislative agenda unless the SALT cap is either abolished or dramatically raised. In effect, they are threatening the national interest in order to protect a localized tax privilege that disproportionately benefits the wealthy in their own backyards.

This is not a novel grievance. The SALT deduction has always been a source of quiet resentment in low-tax states, but only since the 2017 Tax Cuts and Jobs Act capped the deduction at $10,000 has its structural unfairness gained mainstream attention. The cap, while a half-measure, was at least a step in the direction of equity. Predictably, the blue-state political class recoiled. Now, with President Trump returned to office and seeking to implement a broader tax overhaul, a coalition of House Republicans from states like New York and New Jersey have threatened to derail his agenda unless the SALT cap is raised or repealed. Their demand, in essence, is to restore a federal subsidy for state-level fiscal irresponsibility.

Let us examine the numbers. Before the 2017 cap, the average SALT deduction as a percentage of adjusted gross income (AGI) was 9.4 percent in New York, 8.8 in New Jersey, and 8.1 in California. By contrast, Texas, Florida, and Tennessee hovered around 2 to 2.8 percent. The disparity is not incidental. It reflects fundamentally different approaches to governance: blue states tax heavily and spend liberally, while red states prioritize limited government and market-driven growth. The SALT deduction blurs these lines, allowing residents of high-tax states to deduct part of their inflated tax burden from their federal obligations, thereby reducing the true cost of their state’s largesse.

In economic terms, this is a textbook case of moral hazard. When the costs of a policy decision are partially borne by others, the decision-maker has diminished incentive to exercise restraint. High-tax states, secure in the knowledge that a generous portion of their tax burden can be offloaded to Washington, have little reason to discipline their budgets. The federal deduction functions as a pressure-release valve: it dulls the pain of taxation without altering its source. Worse, it externalizes that pain, redistributing it across state lines to taxpayers in jurisdictions that chose a different path.

Consider a homeowner in Texas, a state with no income tax but high property taxes, paying $8,000 annually in local levies. His entire SALT deduction likely fits within the cap. Compare this with a New Yorker earning a similar income but paying $15,000 in combined state and local income taxes. Pre-2018, that New Yorker could deduct the full amount, significantly lowering his federal tax liability. Even with the $10,000 cap, the New Yorker still benefits more, since he hits the cap while the Texan remains below it. The implicit message: if your state chooses to tax you more, the federal government will help cushion the blow. If your state taxes less, congratulations, you’ll be footing part of your neighbor’s bill.

One might object that taxpayers in high-tax states also contribute more to the federal treasury overall. That is true as a matter of gross receipts, but misleading as a defense of SALT. High-income earners do pay more in federal taxes, but SALT is not about progressive taxation, it is about deduction privileges. The relevant comparison is between two individuals with the same income in different states. In that context, SALT rewards not income, but tax burden. It turns states with a voracious appetite for revenue into net beneficiaries of federal largesse. This is not federalism, it is fiscal asymmetry.

Moreover, SALT distorts the feedback loop between voters and policymakers. In a functioning democracy, citizens weigh the cost of taxation against the value of services provided. If taxes rise too high, voters can rebuke elected officials at the ballot box. But SALT insulates state governments from that reckoning. By shifting a portion of the tax burden to Washington, it severs the natural accountability between state policies and their fiscal consequences. Voters in high-tax states may never feel the full weight of their governments’ extravagance, because Uncle Sam is always there to split the tab.

The incentive structure here is corrupting. It emboldens legislators in places like Albany and Sacramento to enact ever-higher tax schemes, confident that the federal code will buffer their political exposure. Meanwhile, responsible states, having foregone income taxes and adopted leaner budgets, are penalized. They subsidize not only Washington’s programs, but also the excesses of their more profligate brethren.

This arrangement is not merely inefficient, it is unjust. A Florida small business owner should not be underwriting the tax credits of a Manhattan hedge fund manager. A teacher in Nashville should not be subsidizing the property tax bill of a Palo Alto tech executive. That such injustices have persisted under the guise of tax relief is a testament to the inertia of policy and the influence of coastal political elites.

To be clear, the $10,000 cap was not a panacea. It did not eliminate the unfairness, it only dulled its sharper edges. Yet even that modest reform is now under siege, with blue-state Republicans playing hostage politics to restore a tax shelter for their wealthiest constituents. This is not principled conservatism, it is parochial self-dealing dressed in populist garb.

President Trump would be wise to reject these demands. His mandate is to restore fairness and efficiency to the federal code, not to resurrect loopholes for the benefit of a few zip codes. Let New York and California make their own fiscal choices, but let them bear the costs as well. That is the essence of federalism: autonomy balanced by accountability. The SALT deduction, in its uncapped form, obliterates that balance.

It is sometimes said that a government’s budget is a moral document. If that is so, then the SALT deduction tells a clear story: those who tax less, get less. Those who tax more, are rewarded. That is neither moral nor sustainable. It is time to end the subsidy. Not merely to preserve equity among states, but to affirm the principle that no state has the right to conscript the resources of another to fund its ideological experiments.

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