Senate SALT Giveaway is Far Bigger Than the House's

Although initially excluding any increase in the state and local tax (SALT) deduction cap from its bill, the latest Senate bill proposes even more SALT relief than the House. Both the House and the Senate would boost the $10,000 SALT cap up to $40,000 for those making below $500,000 per year. But while the Senate version appears cheaper due to the fact it is scheduled to expire after five years, its actually far more generous. 

We estimate the Senate’s direct SALT relief is roughly 10 percent larger than the House, and the combined SALT relief and Alternative Minimum Tax (AMT) changes are two-thirds larger.¹ If made permanent, we estimate the Senate changes, including AMT, would cost $325 billion on net, while the House changes would cost roughly $200 billion.

The Senate is more generous than the House in three different ways:

1. The Senate fully protects SALT cap workarounds that allow many wealthy taxpayers to avoid the SALT cap altogether, while the House limits them.
2. The Senate limits the value of the SALT deduction (and other deductions) to 35 cents on the dollar, while the House limits the value to 32 cents.

3. The Senate only modestly expands the AMT relative to TCJA extension – which removes the SALT deduction for certain taxpayers – by putting the exemption phaseout thresholds to 2018 levels and increasing the phaseout percentage from 25 to 50 percent. The House also reduces the exemption amount to its 2018 level ($1 million).

   Comparing SALT Policies in House and Senate OBBBA

As we’ve written before, SALT cap relief is expensive and regressive, worsens tax complexity, and has little justification from a tax policy justification. The original call of various senators to scale back the House SALT relief was a welcomed opportunity. It is disappointing that the bill instead worsens the SALT expansion proposed by the House. 

Instead of offering larger SALT giveaways with new timing gimmicks, the Senate should consider a lower SALT cap and stronger limits on the deduction. As we’ve written elsewhere, additional limits on the SALT deduction could generate up to $1 trillion of savings to offset other provisions.

1 Our AMT estimates are very rough and based on our understanding of the magnitude of the AMT policies included in the Senate bill.