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Analysis of H.R. 1757: A Proposal to Raise the SALT Deduction Cap

2 min readBy: Kyle Pomerleau

Under previous law, individuals who itemized their deductions could deduct certain state and local taxes they paid against their federal taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. . To broaden the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , the Tax Cuts and Jobs Act limited the amount individuals could deduct in state and local taxes to $10,000. For high-income taxpayers, this cap increased federal taxable income. However, high-income taxpayers also received offsetting tax cuts, such as lower statutory taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rates, a much larger Alternative Minimum Tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. , and a reduction in the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. . On net, these taxpayers tended to have a lower liability under current law, even with the capped SALT deduction.

In March, Rep. Lauren Underwood (D-IL) introduced a bill to increase the limitation on the state and local tax (SALT) deduction and adjust the cap each year for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. .[1]

Description of the Proposal

The proposal would make two changes to current policy’s SALT deduction cap. First, it would raise the cap from $10,000 ($10,000 for married couples filing jointly) to $15,000 ($30,000 married couples filing jointly). Second, it would adjust the cap for inflation each year. Under current policy, the SALT deduction cap is not adjusted for inflation.

Revenue Effect

We estimate that the proposal to raise the SALT deduction cap and adjust it to inflation would reduce federal revenue by $223 billion between 2020 and 2029. This proposal would only affect federal revenue between 2020 and 2025. This is because the SALT cap is scheduled to expire after December 31, 2026 along with most of the other individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. provisions passed as part of the Tax Cuts and Jobs Act.

Revenue Impact of H.R. 1757 (Billions of Dollars)
Year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2020-2029

Source: Tax Foundation General Equilibrium Model, March 2019

Conventional Estimate -$31 -$33 -$36 -$38 -$41 -$43 $0 $0 $0 $0 -$223

Distributional Effect

Overall, this proposal would make the tax code less progressive. We estimate it would have no impact on taxpayers in the bottom three income quintiles and a negligible impact on taxpayers in the third and fourth quintiles. These taxpayers currently benefit from the new large standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. . However, taxpayers in the top 5 and 1 percent of income earners would see an increase in after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize their earnings. of 0.82 percent and 0.42 percent respectively.

The Distributional Impact of H.R. 1757. 2020
Income Group Percent Change in After-tax income
0% to 20% 0.00%
20% to 40% 0.00%
40% to 60% 0.00%
60% to 80% 0.03%
80% to 90% 0.16%
90% to 95% 0.41%
95% to 99% 0.82%
99% to 100% 0.42%
TOTAL 0.25%

[1] H.R.1757, “To amend the Internal Revenue Code of 1986 to increase the limitation on the amount individuals can deduct for certain State and local Taxes,” 116th Congress (2019-2020), March 14, 2019,

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