Former President Donald Trump has made a surprising promise to restore the state and local tax (SALT) deduction, a provision he himself capped during his first term.
This move is widely seen as an attempt to appeal to New Yorkers, especially as he ramps up efforts to flip the traditionally blue state. While this change may sound like a significant tax break for high-tax states, its broader impact remains uncertain for most taxpayers.
Key Facts:
- Trump promised to restore the full SALT deduction, which his 2017 tax reform capped at $10,000.
- The SALT deduction allows taxpayers to deduct state and local taxes from their federal income tax.
- Repealing the SALT cap would benefit high-income earners in states like New York, but most Americans would see little change.
- Trump’s rally in Long Island is part of his strategy to win New York, a state he believes he can flip in the 2024 election.
- The SALT cap was originally put in place to reduce the deficit caused by Trump’s 2017 corporate tax reform.
The Rest of the Story:
In 2017, Trump’s Tax Cuts and Jobs Act introduced a $10,000 cap on the SALT deduction, which disproportionately affected residents in high-tax blue states such as New York and California. The cap was a response to budget constraints caused by corporate tax cuts, but it was deeply unpopular among state officials and taxpayers in these states.
Now, as part of his 2024 campaign, Trump is making a reversal on this policy. In a post on Truth Social, he promised to “turn it around” and bring back the full deduction for SALT, claiming that it would help bring New York back to its economic heights of 50 years ago. He also emphasized his willingness to work with New York’s Democrat Governor and Mayor to achieve these goals.
For wealthy New Yorkers, the repeal of the SALT cap could mean significant tax savings. For instance, a taxpayer earning $100,000 and paying over $20,000 in state and local taxes could save approximately $2,300. However, the vast majority of Americans, who take the standard deduction rather than itemizing, would see little to no benefit. According to the IRS, in 2018, nearly 87% of taxpayers opted for the standard deduction.
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Trump’s shift is seen by many as part of a broader strategy to win over voters in states like New York, where state politicians from both parties have long sought relief from the SALT cap. Former New York Governor Andrew Cuomo previously argued that removing the SALT cap would reduce the effective tax rate for top earners, helping to keep wealthier residents from leaving the state.
Commentary:
Trump’s new stance on the SALT deduction seems to reflect a notable flip-flop of his own. His administration initially capped SALT to balance the budget after significant corporate tax cuts in 2017, knowing it would hit states like New York hard. So why the sudden change? Many argue it’s a clear attempt to pander for votes in a blue state he hopes to turn red. After all, eliminating the SALT cap would primarily benefit wealthier individuals in states like New York, where his campaign is focusing efforts.
🚨New York RALLY ALERT: Our next President, Donald Trump, will be on Long Island next Wednesday at Nassau Coliseum. Doors open at 3pm. We need everyone there! 🇺🇸https://t.co/hugEgj9LLd
— Lee Zeldin (@leezeldin) September 11, 2024
Yet, this proposal raises important questions about fiscal responsibility. The nation is has just spent over $1 trillion in interest on its debt for the first time this year, and promising more tax cuts without a clear way to pay for them could further deepen the deficit.
Trump has promised a plethora of tax cuts yet has been stopped short of specific details about how they would work or how he would pay for them.
Brian Riedl, a Libertarian-leaning senior fellow at the Manhattan Institute has estimated that Trump’s proposed tax reductions could increase deficits by $11 trillion over a decade.
Tax relief may be appealing to voters, but it’s critical to ensure that any promises made, especially by a Republican presidential nominee, align with the broader goal of maintaining fiscal stability.
The Bottom Line:
Trump’s promise to restore the SALT deduction is part of a larger strategy to appeal to voters in high-tax states like New York, where the cap introduced during his first term hit hardest. While this reversal could save wealthy taxpayers significant money, most Americans would see little benefit.
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As Trump looks to flip New York in 2024, questions remain about how his broader tax proposals will affect the economy and national debt in the long run.
