Committee for a Responsible Federal Budget
Concept_Wallet

$72,500 SALT Cap is Costly and Regressive

Nov 3, 2021 | Taxes

The latest version of the Build Back Better Act being considered by the House Rules Committee would increase the state and local tax (SALT) deduction cap from $10,000 to $72,500 for five years (including retroactive to 2021) and then extend that cap through 2031. This proposal would cost roughly $300 billion through 2025, with roughly $240 billion going to those making over $200,000 per year.1

Though this increase in the SALT deduction cap would be less costly than full repeal, it would still cost more than almost any other part of Build Back Better with just the child care subsidies and the combined costs of all clean energy tax credits costing more. The benefits would also accrue disproportionately to high earners. While those in the middle of the income spectrum would receive an average tax cut of roughly $20 per year, the highest earners would enjoy over $23,000 per year in tax cuts from this provision. According to estimates from the Tax Foundation, roughly 80 percent of the benefit from this increased cap would go towards households making more than $200,000.

That same analysis shows that only 2.5 percent of the benefit of this SALT cap increase would go to those making less than $100,000 pear year.

The tax cut would be offset on paper by extending the higher SALT cap through 2031, instead of allowing it to expire with the majority of the Tax Cuts and Jobs Act (TCJA) in 2026 under current law. However, should lawmakers eventually choose to extend the individual tax rate cuts included in the TCJA, which are also set to expire in 2026, this cap extension would increase the cost of doing so and could ultimately reduce the overall amount of revenue the tax code is likely to raise beyond 2025.

As we've shown before, there is no such thing as progressive SALT cap relief. Increasing the SALT cap in Build Back Better would be a costly mistake


1 Rough CRFB estimate based on Tax Foundation and other sources.

Tags