Ahead of his rally in Nassau County, N.Y., Donald Trump fired off a Truth Social post in which he offhandedly vowed to unravel one of the most commendable accomplishments of his presidency — the cap on the deduction for state and local taxes.
The announcement was the latest example of Trump making bad policy pronouncements close to campaign appearances. It was at a Nevada rally over the summer that he introduced the “no taxes on tips” gimmick; in Michigan, he called for expanding Obamacare by adding a mandate that insurers cover IVF (or for government to cover it directly); and in Arizona, he arbitrarily called for ending taxes on overtime pay.
If reelected, Trump would already have to grapple with a historically high national debt while promising to make the tax cuts passed during his first term permanent. Instead of deciding how he would offset the direct deficit effects of extending the tax cuts, he has ruled out reforming our unsustainable entitlements. Now, by calling for restoring the SALT deduction, Trump would be removing one of the policies that was put in place to limit the deficit effects of his 2017 tax-cut plan.
Before Trump and Republicans created the $10,000 cap, individuals were able to deduct an unlimited amount of state income taxes and local property taxes from their federal returns. This provided a huge benefit to wealthy individuals in high-tax blue states who could reduce their tax burden through taxes paid on multi-million-dollar homes. It also provided an incentive for progressive states to spend more money and raise taxes, because they knew that the economic effects as well as the political backlash to those tax increases would be blunted by the deduction. In effect, this encouraged the expansion of government at the state level and transferred the burden to residents of lower-tax states forced to pay higher taxes than they otherwise would.
Restoring the SALT deduction would produce $1.4 trillion in lower revenues relative to a scenario in which the current cap is maintained, according to an analysis by the Tax Foundation, and $2.2 trillion relative to a situation in which Republicans go further this time and eliminate the deduction altogether. That would help offset the effects of extending the other Trump tax cuts, which offer broad benefits including to those who might be made worse off by the more limited SALT deduction (such as ending the AMT, expanding the standard deduction, lowering the rates, and increasing the child credit).
Beyond being bad fiscal policy that fuels bigger government, restoring the deduction is terrible politics for a populist Republican presidential candidate. The states most affected by the SALT deduction are solid-blue ones that will not be competitive — led by California, New York, and New Jersey. We understand why swing-district House Republicans in those states may find it politically necessary to break with their party on this issue, but Trump is not competing in any of them. At the same time, the SALT deduction is the best opportunity Trump has to respond to charges that he only supports tax cuts for the rich, because the SALT deduction is the most prominent example of Democrats supporting a policy that overwhelmingly favors the wealthy.
If Trump really wanted to adopt a bold and sensible policy with populist appeal, instead of calling for bringing back the SALT deduction, he should be calling for eliminating it altogether.