August 26, 2021

New Report Outlines Less Costly Alternatives to SALT Repeal

news release

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Ever since former President Trump and the GOP-led Congress enacted a $10,000 cap on state and local tax (SALT) deductions in December 2017, federal and state lawmakers in the mostly “blue”, higher-income states that have more residents affected by the provision have been weighing measures to repeal the cap or provide state-level workarounds.  

Repealing the cap has made its way into negotiations over the FY2022 budget, which Democrats are leading. The Institute on Taxation and Economic Policy (ITEP) has produced mounds of research demonstrating that SALT repeal will primarily benefit the highest-income households, even in wealthier states. Further, repeal would exacerbate racial inequities because it would primarily benefit high-income white households. ITEP continues to recommend leaving the SALT cap in place, but today it has released a report with three alternatives to SALT repeal: 

  1. Raise the SALT cap to $15,000/$30,000 
  1. Repeal SALT cap for those with income below $400,000 
  1. Allow taxpayers to choose the $10,000 SALT cap or deduct SALT exceeding 8 percent of their income. 

ITEP estimates SALT repeal would lose $101 billion in federal revenue in FY2022. The alternatives would lose less revenue than repealing the cap.  

Option No. 1 would lose about $33 billion in revenue. It eliminates the marriage penalty embedded in the current design of the cap and is somewhat less regressive than outright repeal. The main benefit of this approach is its simplicity. 

Option No. 2 would lose about $30 billion in revenue. It would repeal the SALT cap for those with adjusted gross income (AGI) below $400,000 and phase the cap in for those with AGI between $400,000 and $500,000. The benefit of this option is that it removes the SALT cap for anyone who is not considered “rich,” without providing any new tax cut for those with the highest incomes.   

And option No. 3 would lose about $29 billion in revenue. It gives taxpayers the choice of either a SALT cap or a floor. This option allows state and local governments to impose significant taxes on their richest residents with the knowledge that the federal government is effectively paying at least some of those taxes.  

All of these measures still primarily benefit the highest-income households. But they will lose less revenue than full repeal. To read the entire report, which includes national and state-by-state data on the high-income households that would be affected by repeal or the three alternative options, visit: