In its latest revision of the One Big Beautiful Bill Act, the Senate has yielded to House demands on the State and Local Tax (SALT) deduction cap, and in doing so, has produced a version that’s even worse than expected.
Where previous versions maintained a semblance of fiscal restraint with a $10,000 cap as a starting point, this bill shreds that pretense. It raises the SALT cap to $40,000, fully caving to the demands of a handful of House members and offering an enormous windfall to the wealthiest households in high-tax blue states.
Worse still, it does all that while removing existing constraints and enabling workarounds that further erode the tax base. At least the House version included limits on SALT workarounds and had a lower deduction value limit for the highest earners.
Let’s be clear: This isn’t tax relief for the middle class. This is upward redistribution — from middle America to the affluent coastal elite.
Taxing Middle America to Subsidize the Wealthiest
It may seem counterintuitive—if not outright cynical—that a Republican-controlled Congress would choose to subsidize the property taxes of high-income households in affluent counties such as Westchester, Marin, and Montgomery.
Yet here we are:
Two-thirds of the benefits from this expanded SALT deduction will go to households earning over $500,000 a year, while the bottom 80% receive no benefit.
These high-income households are overwhelmingly concentrated in high-tax, high-spending states such as New York, California, and New Jersey (Figure 1).
The new cap not only raises the maximum deduction but also removes guardrails that prevented creative tax avoidance strategies — changes that amplify its regressive nature.
Rewarding Fiscal Mismanagement
The policy implications of the raised SALT cap are clear: It rewards failure. Badly managed states and cities that chronically overspend and overtax will now have less reason than ever to reform. Why should they? The federal government has stepped in to cushion the impact of their policies. High-income residents in those jurisdictions will now receive a federal tax shelter, and the cost is passed on to taxpayers in the rest of the country.
This is not conservative policy. This is not fiscally responsible policy. This is a political giveaway dressed up as tax relief.
Beyond the optics and fairness, the economic damage is also tangible. Economic projections suggest that the revised SALT cap will inflict measurable harm across several key indicators:
Cost U.S. taxpayers $325 billion
Reduce the capital stock by 2.3%
Lower long-term wages by 0.7%
Shrink long-term GDP by 1%
This is not just bad politics. It’s bad economics.
Funding the Very Agenda They Oppose
Republican lawmakers rightly warn of the growing influence of socialist policies promoted by figures like Zohran Mamdani. And yet, this bill will help him and others afford those very policies. By shielding high earners from the fiscal consequences of local profligacy, the federal government is, in effect, enabling local tax-and-spend agendas.
This is what “fiscally conservative” governance looks like in 2025?
Final Thought
Let me be very clear: Any policymaker who voted for the SALT cap increase has forfeited the right to lecture others about fiscal responsibility, living within our means, or holding the line on spending. Their actions speak louder than any tired talking point.
And spare us the excuse that this is all about “renewing the TCJA to prevent tax hikes on American families.” That claim falls apart under even basic scrutiny. One-third of this bill has nothing to do with the TCJA, and the SALT cap expansion directly undermines what the TCJA aimed to achieve: broadening the tax base to support lower rates and a more neutral, pro-growth tax code.
If expanding deductions for the wealthy in high-tax jurisdictions is now acceptable tax policy, we’ve clearly abandoned the principles of sound reform.