Trump Said He’s Bringing SALT Back. Tax Experts Say It’s Not so Easy

The tax landscape in the United States is often a labyrinth of policies and revisions, and former President Donald Trump has recently rekindled a heated debate. In his campaign rhetoric, Trump said he’s bringing SALT back, a pledge that has caught the attention of homeowners, economists, and policymakers alike. However, tax experts caution that reinstating the full state and local tax (SALT) deduction is not as straightforward as it may seem.

What Is the SALT Deduction?

The SALT deduction has been a critical element of the U.S. tax code, allowing taxpayers to deduct their state and local taxes from their federal taxable income. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, this deduction was unlimited, which benefited high-income earners in states with steep income and property taxes. When Trump signed the TCJA into law, it capped the SALT deduction at $10,000, sparking controversy and legal challenges from high-tax states.

Now, as Trump said he’s bringing SALT back, many are curious whether this move will reverse the policy changes made during his own administration. Tax experts say it’s not so easy, citing political, economic, and logistical hurdles.

The Political Challenges of Reinstating SALT

One of the most significant barriers to fully restoring the SALT deduction is the political landscape. The Republican Party, traditionally a proponent of lower federal taxes, largely supported the SALT cap as it disproportionately affected wealthy individuals in Democratic-leaning states like New York, California, and New Jersey. While Trump said he’s bringing SALT back, garnering bipartisan support for such a move may prove to be a monumental task.

Democrats, on the other hand, have long criticised the SALT cap, claiming it unfairly burdens middle-class families in high-tax states. However, even within the Democratic Party, there’s a divide. Progressive lawmakers argue that reinstating the full SALT deduction primarily benefits the wealthy, contradicting their agenda to reduce income inequality. This ideological split further complicates Trump’s promise.

Economic Implications of Bringing SALT Back

Economists are quick to point out that eliminating the SALT cap would have significant economic repercussions. When Trump said he’s bringing SALT back, critics questioned whether this move aligns with broader fiscal policies aimed at reducing the federal deficit. According to estimates from the Tax Policy Center, repealing the SALT cap could cost the federal government over $90 billion annually.

Moreover, the benefits of restoring the SALT deduction would largely flow to higher-income households. Analysts argue that this could exacerbate existing wealth disparities, an outcome that many lawmakers aim to avoid. Tax experts say it’s not so easy to balance these economic considerations while appealing to a wide voter base.

Logistical Hurdles in Reinstating SALT

Beyond political and economic challenges, there are practical issues to consider. Implementing tax policy changes requires meticulous planning and coordination among various agencies. When Trump said he’s bringing SALT back, it raised questions about how quickly and effectively such a reversal could be executed.

For instance, the Internal Revenue Service (IRS) would need to update its systems, forms, and guidelines to reflect the policy change. State governments would also have to adapt their tax codes, as many are closely tied to federal regulations. Tax experts say it’s not so easy to navigate these logistical complexities, especially within a limited timeframe.

Who Stands to Gain if SALT Returns?

While Trump said he’s bringing SALT back as a populist appeal, the reality is that the primary beneficiaries would likely be high-income earners. According to the Tax Foundation, over 96% of the benefits from repealing the SALT cap would go to taxpayers in the top 20% income bracket. Homeowners in affluent areas with high property taxes stand to gain the most, while lower-income taxpayers would see minimal impact.

This raises ethical questions about the fairness of such a policy. Critics argue that restoring the SALT deduction without addressing its regressive nature could undermine efforts to create a more equitable tax system. Tax experts say it’s not so easy to reconcile these disparities with the broader goals of tax reform.

Alternatives to Reinstating SALT

Given the complexities surrounding the issue, some policymakers are exploring alternatives to a full repeal of the SALT cap. For example, increasing the cap from $10,000 to $20,000 could provide relief to middle-class families without disproportionately benefiting the wealthy. Another option is introducing targeted tax credits for specific groups, such as teachers or first responders, who often bear significant state and local tax burdens.

When Trump said he’s bringing SALT back, he did not specify whether he would consider such compromises. Tax experts say it’s not so easy to find a one-size-fits-all solution, particularly when addressing the diverse needs of taxpayers across the country.

Public Opinion on the SALT Deduction

Public sentiment on the SALT deduction is as divided as the political landscape. While many taxpayers in high-tax states support reinstating the full deduction, others view it as a subsidy for wealthy individuals. When Trump said he’s bringing SALT back, it reignited debates about the role of federal tax policy in addressing regional disparities.

A 2021 survey by the Pew Research Center found that only 40% of Americans were aware of the SALT cap, highlighting the need for greater public education on the issue. Tax experts say it’s not so easy to build widespread support for a policy that is often misunderstood or overlooked by the general public.

The Path Forward

As Trump said he’s bringing SALT back, the proposal has undoubtedly reignited a contentious debate. However, the road to restoring the full SALT deduction is fraught with challenges. From political opposition and economic concerns to logistical complexities and ethical dilemmas, tax experts say it’s not so easy to achieve this goal.

Ultimately, the future of the SALT deduction will depend on careful negotiations and compromises among lawmakers. Whether Trump’s promise resonates with voters or becomes another unfulfilled campaign pledge remains to be seen. For now, the conversation around SALT serves as a poignant reminder of the intricate balance required to craft effective tax policies in a divided nation.