Business SALT Proposal Details & Analysis
Policymakers are soon to decide the fate of state and local tax. A tax is a mandatory payment collected by local, national, and state governments from individuals and businesses in order to cover the cost of general government goods, services, and activities.
As they consider extending expiring provisions from the 2017 Tax Cuts and Jobs Act, they will cap the SALT deduction at . Since 2018, the individual SALT deductions are capped at $10,000 to offset the cost of broader tax cuts. The looming expirations of these cuts for individuals have sparked a debate about making the cap generous as part Congress’s reconciliation package. This could include limiting pass-through workarounds, and SALT deductions by corporations. While capping business SALT could raise additional revenue, it would risk slowing economic growth.
Disallowing corporate SALT deductions for income tax would raise $209.4 billion over 10 years on a conventional basis, while disallowing SALT deductions for corporate
property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the largest source of revenue for state and local governments in the U.S. They fund schools, roads and police services, among other things.
would raise another $222.9 billion over 10 years (see Table 1).In addition to new limits on corporate SALT deductions, policymakers may adjust business SALT deductions more broadly through new limits on pass-through SALT deductions, firms such as partnerships, sole proprietorships, and S corporations.
In many states, pass-through firm owners can avoid the individual SALT cap through pass-through workarounds. Workarounds allow pass-through owners pay state taxes at firm level and qualify for a full deduction from federal
individual tax. The U.S. has a progressive income-tax system where rates increase as income increases. The Federal Income Tax was created in 1913, with the ratification 16th Amendment. Individual income taxes, which are only 100 years old but are the biggest source of tax revenue for the United States, have been around since 1913.
.Certain workarounds are permitted by the IRS under current law, but policymakers may choose to disallow them. Under a $10,000 permanent SALT cap, we estimate that ending pass-through workarounds could raise $211 billion over a 10-year period. This option would likely be paired with similar treatment for C corporations. This option would likely be paired with similar treatment for C corporations.
Altogether, repealing business income and property tax deductions would raise about $924.5 billion in conventional revenue over 10 years relative to TCJA permanence, reducing the cost of permanence from $3.5 trillion to $2.6 trillion over 10 years.
Table 1. 10-Year Conventional Revenue Estimates of Disallowing Business State and Local Tax Deductions and Making TCJA Individual Provisions Permanent (Billions of Dollars)
Source: Tax Foundation General Equilibrium Model, May 2025. Note: TCJA individual permanence includes the revenue impact of making the individual $10,000 SALT deduction limit permanent.
Business SALT deduction limits would provide significant revenue to help offset a permanent extension of TCJA’s individual provisions. The limits would have a significant economic cost. Repealing SALT deductions for corporate income and property taxes would reduce long-run GDP by 0.6 percent and repealing SALT deductions for pass-through income and property taxes would further reduce GDP by 0.7 percent.
Altogether, disallowing SALT deductions for business property and income taxes would reduce long-run GDP by 1.3 percent, more than offsetting the 0.4 percent boost in GDP from making the TCJA individual provisions permanent. Combining permanent TCJA individual income tax cuts with new limits on SALT deductions for businesses would shrink the economy and reduce American incomes. It would also increase the federal deficit, which would undermine the policy goals of TCJA’s permanence. Long-Run Economic Effects of Disallowing Business State and Local Tax Deductions and Making TCJA Individual Provisions Permanent
Source: Tax Foundation General Equilibrium Model, May 2025.
Note: Items may not sum due to rounding and interaction effects. TCJA individual permanence is the economic and revenue impact that comes with making the $10,000 SALT deduction cap permanent. GNP estimates include the impact of federal budget deficit changes on American incomes.
Note
: This is part of a blog post series in which we explore potential changes to corporate SALT deductions. See related analyses here and here.
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