Eliminate the State and Local Tax Deduction Cap

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.