When then-candidate Donald Trump told a Long Island rally in September that he wanted to lift the $10,000 cap on state and local (SALT) deductions for federal income taxes, New York officials foresaw a windfall that could boost state coffers and keep wealthy taxpayers from leaving.
Protecting the Wealthy
Republican representatives in the state like Mike Lawler centered their reelection campaigns on following through on that promise, with the Hudson Valley Congress member calling it the most important issue for voters in his district. At the time, the case for so-called no cap seemed to be gaining momentum.
But even before now-President-elect Trump is inaugurated, his advisors have signaled they are working on a proposal that would only double the cap to $20,000 — and possibly only for married couples.
That move would provide little benefit to New York taxpayers and potentially set up a confrontation between the Trump administration and the state’s Republican representatives in the House.
The Impact on New York
The state says that New Yorkers pay $12 billion a year more in federal income taxes than if they could deduct all their state and local taxes.
Efforts by Democrats to repeal the cap during the Biden administration stalled in part because progressive Democrats like Queens Rep. Alexandria Ocasio-Cortez opposed what they saw as a giveaway to the rich.
In addition, the cost of reinstating unlimited SALT deductions is a whopping $1.2 trillion over the next decade, according to the Penn Wharton budget model, making it difficult to justify amid ballooning federal budget deficits.
The Limited Help from Doubling the Cap
While tax experts have yet to crunch the numbers on a $20,000 limit, it would likely provide only a modest impact in New York.
For example, the 2017 bill greatly increased the standard deduction, so many middle-income New Yorkers saw very little impact from the end of their SALT deductions. Nationally, 90% of taxpayers take the standard deduction rather than itemizing, according to the IRS.
Conclusion
Lifting the cap completely would have a major impact on the wealthy. Millionaires pay 40% of all the $107 billion in income taxes the state collected last year, and the top 200,000 filers pay half. Being able to deduct those payments from their federal tax would give them big savings.
FAQs
Q: What is the current cap on SALT deductions?
A: The current cap is $10,000.
Q: What is the proposal by Trump advisors?
A: The proposal is to double the cap to $20,000, possibly only for married couples.
Q: How will this affect New York taxpayers?
A: The limited help from doubling the cap will provide only a modest impact in New York.
Q: Why is lifting the cap important for New York?
A: Lifting the cap would provide a significant benefit to wealthy New Yorkers, who disproportionately pay a huge share of the state’s taxes.
