Raising the Salt Cap Would Increase Tax Complexity
Alex Brill and Kyle Pomerleau | AEIdeas
The individual provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025. The Republican-controlled Congress intends to extend these tax cuts but some Republican lawmakers are demanding changes. Last week, incoming Trump administration officials met with a handful of Republican lawmakers to discuss raising the cap on the state and local tax (SALT) deduction. Under current law, all taxpayers can claim a SALT deduction up to $10,000 if they itemize their deductions. In addition to increasing the revenue loss associated with a TCJA extension, raising the SALT cap would increase tax complexity.
Taxpayers will generally choose to itemize if their deductions exceed the value of the standard deduction, which in 2025 is $15,000 for single filers and $30,000 married filing jointly. Itemized deductions include state and local income or sales taxes; property taxes; interest on home mortgages; and charitable contributions.
The TCJA simplified tax filing for millions of taxpayers by roughly doubling the standard deduction, imposing the first cap on the SALT deduction, and tightening the limitation on the home mortgage interest deduction. Combined, these changes made the standard deduction more generous than itemized deductions for more tax filers, reducing the share of tax filers who itemized from roughly 26 percent to 11 percent, and simplifying the tax code for tens of millions of taxpayers.
Raising the SALT cap would undo some of this simplification. With a higher SALT cap, more taxpayers will find it more valuable to itemize their deductions. For example, if lawmakers raised the SALT cap for married couples filing jointly to $20,000, the number of itemizers would rise by 4.1 million, from 21.8 million to 25.9 million. If the SALT cap were to rise from $10,000 for all filers to $25,000 for single filers and $50,000 for married filing jointly or higher, the number of itemizers would rise to 28.9 million.
Raising the SALT cap would also increase complexity by subjecting more taxpayers to the alternative minimum tax (AMT). The AMT is a parallel income tax that operates alongside the ordinary income tax. Certain taxpayers are required to calculate their liability under both the AMT and ordinary income tax and pay the greater of the two taxes. The TCJA greatly scaled back the AMT, reducing the share of households subject to the tax and the associated compliance burden.
Because raising the SALT deduction would reduce ordinary income tax liabilities, more taxpayers would find themselves subject to the AMT. While smaller changes to the SALT deduction would modestly increase the number of AMT filers, raising the cap to $100,000 ($200,000 for married couples filing jointly), would raise the number of AMT filers from 272,000 to 903,000. Table 1 compares the number of expected itemizers and AMT taxpayers in 2026 under various SALT cap scenarios assuming other expiring TCJA individual income tax provisions are extended.
Table 1. Number of Itemizers and AMT Filers under Various SALT Cap Scenarios, 2026
Itemizers | AMT Filers | |
$10,000 (Current Policy) | 21,826,000 | 272,000 |
$10,000/$20,000 | 25,998,000 | 278,000 |
$25,000/$50,000 | 28,975,000 | 405,000 |
$50,000/$100,000 | 28,985,000 | 802,000 |
$100,000/$200,000 | 28,985,000 | 903,000 |
No SALT Cap | 28,985,000 | 940,000 |
One of the key accomplishments of TCJA was that it significantly simplified the tax code. Extending TCJA, while costly, would preserve this simplification. Lowering or even eliminating the SALT deduction, while perhaps politically untenable, would simplify the tax code even further.
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