Key points:

The House passed Biden’s $2 Trillion “Build Back Better” bill on November 19. The bill plans to raise the $10,000 cap on the deduction for state and local taxes to $80,000 through 2030. To gain a sense of who wins and who loses, here is what a full repeal would do:

  • 86% of the total tax reduction from the state and local tax (SALT) cap lift goes to rich taxpayers making over $500,000; though they are just one percent of total taxpayers.
  • The biggest effect of SALT repeal would be to lower taxes on the rich in high tax states; the SALT repeal raises taxes on the rich in low tax states.
  • Just three states: California, New York, and Connecticut, plus Washington DC, would be big winners. That is, the state share of the national SALT deduction by the rich is more than 50% higher than the share of state taxes by the rich. Just two other states, Minnesota and New Jersey, would be winners and just three more states would see little effect.
  • Forty-two states would be losers as the tax increases on wealthy people in their states would exceed the tax savings from SALT repeal.