Option 28:

Eliminate the State and Local Tax Deduction Cap

Topline Estimates

Gross Domestic Product (GDP)
+1.1%
Gross National Product (GNP)
+0.8%
Full-Time Equivalent Jobs
+553K
Wage Rate
+0.7%
Capital Stock
+2.9%
Conventional Primary Deficit Change (10‑Yr)
+$916.3B
Dynamic Primary Deficit Change (10‑Yr)
+$264.0B
Dynamic Total Deficit Change (10‑Yr)
+$335.9B

Source: Tax Foundation General Equilibrium Model.

The itemized deduction for state and local taxes (SALT) paid allows taxpayers to deduct state and local property taxes, plus either income or sales taxes. In 2026, it is capped at $40,400 for both single and joint taxpayers, and that cap phases down to $10,000 for taxpayers earning above $505,000. The cap is scheduled to rise by 1 percent per year through 2029, after which it will revert to $10,000 for all taxpayers.

This option eliminates the cap on the SALT deduction. Eliminating the SALT deduction cap would reduce marginal tax rates on taxpayers who take the deduction, including on labor and pass-through business income, and on investment in owner-occupied housing. Additionally, expanding the deductibility of property taxes would lead to more taxpayers itemizing and taking the mortgage interest deduction, which would indirectly reduce the cost of capital for investment in owner-occupied housing.

On a conventional basis, this option would increase the primary deficit by $916.3 billion over the budget window. Long-run GDP would rise by 1.1 percent, and long-run GNP would rise by 0.8 percent. On a dynamic basis, the primary deficit would increase by $264.0 billion from 2027 through 2036, $652.3 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 174.3 percent by 2056.

On average, in 2036, taxpayers would see increases in their after-tax incomes of 0.5 percent. The top quintile of taxpayers, who are more likely to itemize, would experience a 0.8 percent increase, whereas the bottom quintile, who are less likely to itemize, would experience a slight increase. On a long-run dynamic basis, taxpayers would see a 1.4 percent increase on average.

Modeled Results

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About the Authors

Erica York Tax Foundation
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Erica York

Vice President of Federal Tax Policy

Erica York is Vice President of Federal Tax Policy with Tax Foundation’s Center for Federal Tax Policy. Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets.

Garrett Watson Tax Foundation
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Garrett Watson

Director of Policy Analysis

Garrett Watson is Director of Policy Analysis at the Tax Foundation, where he conducts research on federal and state tax policy. His work has been featured in The Washington Post, The Atlantic, Politico, the Associated Press and other major outlets.

Huaqun Li Tax Foundation
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Huaqun Li

Senior Economist, Director of Modeling Projects

Dr. Huaqun Li is Senior Economist, Director of Modeling Projects at the Tax Foundation. She focuses on developing and maintaining the Foundation’s Taxes and Growth Model, which models the budgetary and economic effects of changes to federal tax policy.

William McBride or Will McBride Tax Foundation
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William McBride

Chief Economist & Stephen J. Entin Fellow in Economics

Dr. William McBride is the Chief Economist & Stephen J. Entin Fellow in Economics at the Tax Foundation, where he oversees major research projects primarily related to reforming the federal tax code, advancing sound tax policy, and improving the federal government’s fiscal outlook.

Alex Durante Tax Foundation
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Alex Durante

Senior Economist

Alex Durante is a Senior Economist at the Tax Foundation, working on federal tax policy and model development. Alex worked as a research assistant at the Federal Reserve Board and served as a staff economist on the Council of Economic Advisers.

Alex Muresianu Tax Foundation
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Alex Muresianu

Senior Policy Analyst

Alex Muresianu is a Senior Policy Analyst at the Tax Foundation, focused on federal tax policy. Previously working on the federal team as an intern in the summer of 2018 and as a research assistant in summer 2020. He attended Tufts University, graduating with a degree in economics and minors in finance and political science.

Peter Van Ness Tax Foundation

Peter Van Ness

Research Software Developer

Peter Van Ness is a Research Software Developer at the Tax Foundation working on federal tax policy and model development. Peter previously worked as a research assistant at another think tank and as a data analyst at a consulting firm.

Aleksei Shilov Tax Foundation Research Software Developer

Aleksei Shilov

Research Software Developer

Aleksei Shilov is a Research Software developer at the Tax Foundation working on economic model development and federal tax policy. Aleksei joined the Tax Foundation as an intern in January 2025. He holds a B.S. in computer science and a minor in economics from Northeastern University and is currently based in Boston, MA.

Daniel Bunn Tax Foundation President & CEO
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Daniel Bunn

President and CEO

Daniel Bunn is President and CEO of the Tax Foundation. Daniel has been with the organization since 2018 and, prior to becoming President, successfully built its Center for Global Tax Policy, expanding the Tax Foundation’s reach and impact around the world. Prior to joining the Tax Foundation, Daniel worked in the United States Senate at the Joint Economic Committee.