US tax turmoil: SALT deduction cap sparks deep Republican Rift as Jeffries slams “Phony” reform
Written By Wion Web Desk
Published: May 09, 2025, 12:09 IST | Updated: May 09, 2025, 12:09 IST
Story highlights
Business & Economy: The State and Local Tax (SALT) deduction allows taxpayers to subtract certain state and local taxes, such as property, income, and sales taxes, from their federal tax liability.
As Republicans push to finalise President Donald Trump’s ambitious $4.5 trillion tax cut plan, the State and Local Tax (SALT) deduction cap has emerged as a central flashpoint dividing the party. At the heart of the uproar is a policy first enacted by Republicans in 2017 — and now fiercely opposed by moderates, the Grand Old Party's lawmakers and Democrats alike.
The SALT deduction allows taxpayers to subtract certain state and local taxes, such as property, income, and sales taxes, from their federal tax liability. Prior to 2017, there was no cap on this deduction. But under the Tax Cuts and Jobs Act, passed solely with Republican support during the Trump administration, a cap of $10,000 was introduced. This move significantly affected taxpayers in high-tax states like New York, California, and New Jersey.
According to the Tax Policy Center, nearly 11 million households lost the full benefit of the SALT deduction after the cap was introduced in 2018. The Congressional Budget Office (CBO) estimates that the cap generated about $668 billion in federal revenue over 10 years.
Democrats argue that the SALT cap disproportionately penalises blue-state taxpayers and should simply be allowed to expire at the end of 2025. Jeffries has ridiculed the Republican effort to repackage their tax reform as a relief measure.
As stated in the Associated Press, the US House Minority Leader Hakeem Jeffries, D-N.Y., said Republicans are “crashing the economy, raising costs, and driving us toward a recession.” He added, “This majority, this presidency, has been a complete and total disaster for working-class Americans.”
He further slammed Republicans for pretending to rescue taxpayers from a crisis they created. As stated in Associated Press, Jeffries said, “Donald Trump, House Republicans, and Senate Republicans — let’s be clear, not a single Democrat supported capping the state and local tax deduction. That was done by Republicans when they enacted the GOP tax scam. They crashed the car and want to pretend now that they’re on a rescue operation.”
At the core of the current dispute is Trump’s proposed fiscal package, which includes $4.5 trillion in tax breaks and $1.5 trillion in federal spending cuts, according to a legislative outline obtained by Bloomberg. The proposal reportedly aims to make many of the 2017 tax cuts permanent and roll back several Biden-era incentives, including green energy tax credits and expanded Medicaid funding.
But the plan has hit a wall as fiscally conservative Republicans demand deeper spending cuts, while moderate Republicans push to protect key tax breaks and social programs. The Committee for a Responsible Federal Budget warned in a recent analysis that Trump’s plan could add $3 trillion to the national deficit over a decade if not offset.
The party is deeply divided. On one side, members of the conservative House Freedom Caucus are demanding as much as $2 trillion in additional cuts, particularly to entitlement programs like Medicaid and food assistance, as reported by Politico. On the other side, GOP moderates reportedly argue that removing the SALT cap is essential to winning re-election in competitive districts.
Some of these lawmakers have reportedly met privately with Trump at the White House and at Mar-a-Lago, signalling how high-stakes the issue has become. Speaker Mike Johnson is racing against a self-imposed Memorial Day deadline to pass the bill, but insiders say the split could torpedo the entire legislative effort, as reported by Reuters.
Democrats see an opportunity. If Republicans do nothing, the SALT cap, which was designed to expire at the end of 2025, will vanish on its own, restoring full deductions. Jeffries emphasised that fact repeatedly in his remarks.
As stated in Associated Press, Jeffries said, “If there is nothing done with respect to the state and local tax deduction cap by the end of the year, you know what happens? It goes away. So, anything that Republicans are doing that relates to a cap actually will increase taxes on the American people, not lower taxes. Let’s be clear about that.”
As Republicans struggle to unify their fiscal vision, the SALT cap has become a symbolic and strategic litmus test, not only about tax fairness, but about who truly controls the GOP’s agenda. With Democrats standing firm and moderate Republicans threatening to walk away, Trump’s massive economic plan may hinge on how this single issue is resolved.