September 23, 2021

Repealing the SALT Cap Would Wipe Out Revenue Raised by the House Ways and Means Bill’s Income Tax Provisions


Download National and State-by-State Figures

A recent report from ITEP finds that the tax provisions in the House Ways and Means Committee Build Back Better bill would raise revenue from the richest 5 percent of Americans and from foreign investors.[1]

Media reports indicate that House Democrats may amend the bill to repeal the $10,000 cap on deductions for state and local taxes (SALT) that was enacted as part of the 2017 tax law. This updated analysis finds that repealing the SALT cap would negate much of the income tax increases for the rich that are currently written into the bill.

The bar graph below illustrates the amount of tax cuts or tax increases for different groups under the bill in 2022 and how this would change if lawmakers amend the bill to repeal the SALT cap. The bill would be far less progressive if the SALT cap is repealed.

Figure 1

Repealing the SALT cap would reverse 46 percent of the tax increases that the richest 1 percent of Americans would otherwise face in 2022 under the Ways and Means bill. This figure varies greatly by state, as illustrated in the table below.

Figure 2

Nationally, the richest 1 percent would receive 64 percent of the benefits from repealing the SALT cap in 2022, while the richest 5 percent would receive 87 percent of the benefits.

Figure 3


Some lawmakers in states with higher-than-average SALT claim that their middle-class constituents are significantly affected by the SALT cap. But multiple ITEP analyses show repealing it mainly benefits the rich in every state. The richest 1 percent would receive most of the benefits in all but two states, Maryland and Washington state. (And even in these states, the vast majority of the benefits would go to the richest 5 percent.) Almost none of the benefits would go to the bottom 60 percent of residents in any state.

Figure 4


One category of revenue-raising provisions in the bill is individual income tax increases. This category of tax increases would affect three different kinds of income taxes for individuals (increasing the personal income tax and the net investment income tax and creating a new surcharge) but these changes would be limited to very high-income taxpayers.

When we take into account the ways that taxpayers would likely change their behavior in response to changes in tax law, we find that repealing the SALT cap would wipe out the revenue raised by the bill’s individual income tax increases in 2022.

As written now, in 2022 the bill’s increases in individual income taxes would raise $84.4 billion after considering how taxpayers would likely change their behavior to avoid the bill’s income tax increases on capital gains, as the ITEP report explains in detail. We estimate that amending the bill to repeal the cap on SALT deductions would reduce revenue by $114 billion in 2022. This means that the bill’s provisions affecting individual income taxes for the rich would, in combination, lose revenue overall that year.

The bill does raise other revenue, mainly from corporations, and this does affect the wealthy, albeit indirectly. But the common understanding that congressional Democrats are raising revenue directly from the rich is simply not true if the SALT cap is repealed unless other significant changes are made to the legislation.

Figure 5

The Way Forward

There are several ways that the House leadership could avoid this problem. One approach is for lawmakers to replace the SALT cap with a different kind of limit on tax breaks for the rich that actually raises revenue and avoids disfavoring some states compared to others as the SALT cap does. ITEP has suggested a way to do this.[2]

Another approach would be to limit the reach of the existing SALT cap without repealing it altogether. Another ITEP report analyzes three different potential compromises along these lines that would each cost less than a third as much as repealing the SALT cap.[3]

Still another approach would be to raise more revenue from the richest taxpayers to replace whatever revenue is lost by changing the SALT cap. The Ways and Means bill is loosely based on a revenue plan from the Biden administration but several of its provisions are weaker than those the President proposed.[4]

To take the starkest example of this, Biden’s proposal to tax unrealized capital gains (income that is currently exempt from the income tax) of wealthy people when they die is not in the Ways and Means bill. The current rule exempting this income from taxation allows people like Jeff Bezos to pay an effective rate of zero percent on most of their income.[5] It also leads to the behavioral effects mentioned earlier that restrict how much revenue Congress can raise by raising taxes on capital gains (because wealthy taxpayers can avoid the tax increase by holding onto assets until they die and leave them to their heirs). The President’s proposal would address this problem by taxing this income when wealthy taxpayers die, and the House leadership should consider adding this reform to the bill.


[1] Steve Wamhoff and Matthew Gardner, Tax Changes in the House Ways and Means Committee Build Back Better Bill, Institute on Taxation and Economic Policy, September 21, 2021.

[2] Steve Wamhoff and Matthew Gardner, A Proposal to Simplify President Biden’s Campaign Plan for Personal Income Taxes and Replace the Cap on SALT Deductions, Institute on Taxation and Economic Policy, April 8, 2021.

[3] Steve Wamhoff, Carl Davis and Matthew Gardner, Options to Reduce the Revenue Loss from Adjusting the SALT Cap, Institute on Taxation and Economic Policy, August 26, 2021.

[4] Steve Wamhoff, House Ways and Means Provisions to Raise Revenue Would Significantly Improve Our Tax System But Fall Short of the President’s Plan, Institute on Taxation and Economic Policy, September 15, 2021.

[5] Steve Wamhoff, Biden’s Plan Will Stop Jeff Bezos and Elon Musk from Avoiding Billions in Taxes, Fortune, June 9, 2021.