Trump Announces Major Tax Deduction Change Before Key Rally

Donald Trump promises a fiscal U-turn on the SALT cap as he gears up for a pivotal rally in Long Island.

At a Glance

Former President Trump pledges to restore the full SALT deduction, previously capped at $10,000 during his first term.
The SALT deduction allows taxpayers to deduct state and local taxes from their federal income taxes.
This move aims to swing traditionally Democratic New York in his favor during the upcoming election.
The proposal has complex economic impacts and budgetary consequences.
The revival of the SALT deduction could significantly benefit high-income earners in states with high local taxes.

Trump’s SALT Deduction Promise

Former President Donald Trump has declared his plan to fully restore the state and local tax (SALT) deduction, which he had previously capped during his first term in office. This announcement comes as Trump seeks support from New York voters ahead of a Long Island rally. By promising to eliminate the $10,000 SALT cap, Trump targets high-income earners in states with elevated local taxes, offering them substantial federal tax relief.

New York and New Jersey politicians have long sought to eliminate or reduce the SALT cap to provide tax relief. In high-tax states like New York, the cap has been a point of contention affecting homeowners and high-income earners disproportionately. Repealing the cap could save an individual earning $100,000 in 2023 about $2,300 on their federal tax bill. “I will turn it around, get SALT back, lower your Taxes, and so much more,” Trump pledged on Truth Social.

Economic and Political Ramifications

The economic impacts of this proposal are complex. Reversing the SALT cap would reduce the effective tax rate on New York’s top earners by 37%, turning a 10.9% tax rate into an effective 6.9% tax rate. Most Americans use the standard deduction, so lifting the SALT cap would not significantly impact them. However, higher-income individuals and those in high-tax states would reap considerable benefits.

“Trump was the one who took away SALT. It hurt many New Yorkers, including lots on Long Island,” said Senate Majority Leader Chuck Schumer. “Now that he’s going back to Long Island for the first time, he changes his mind? Give me a break.”

Yet, repealing the SALT cap is not without broader budgetary consequences. The 2017 tax reform, which included the SALT cap, aimed to reduce the deficit and simplify the tax code. Repealing it could add $1.2 trillion to the cost of the tax law extension over the next decade. Some provisions of the 2017 tax reform, including the SALT cap, are due to expire at the end of 2025.

Long Island Rally: A Key Moment

Trump’s commitment comes as he focuses on flipping New York State in the 2024 election. His rally, planned at Nassau Coliseum on Long Island, aims to galvanize support among New Yorkers. Long Island is strategically significant in the battle for control of the U.S. House of Representatives. Notably, 47% of high-income tax returns in Nassau County in 2021 had their SALT deductions capped.

Trump’s announcement has revived debates among experts. Some argue that removing the SALT cap would significantly benefit New York’s economy by reducing the effective tax rate on top earners. On the other hand, critics point out that most Americans using the standard deduction would see little to no benefit. The proposal’s impact on federal deficits remains a contentious issue.