Trump is considering overhauling a key part of his tax plan after Republican blowback
Bloomberg's Kevin Cirilli and Sahil Kapur reported Thursday that Trump may keep the state and local tax (SALT) deduction in place after calling for its elimination in the most recent framework released on September 27.
The SALT deduction allows people to slice off what they pay in state and local taxes from their federal tax bills. The benefit for the tax primarily goes to states with high-income taxes. Notably, people in New York, New Jersey, and California receive about one-third of the total benefits from the deduction.
Trump is concerned that eliminating the deduction would harm some middle-income Americans, according to Bloomberg, which would run counter to his pledge that the plan would benefit middle-class workers.
Reversing course on the SALT deduction would also alleviate concerns from Republican lawmakers in states that receive a lot of the benefits. GOP members in the House from New York, New Jersey, and Massachusetts have expressed concerns about getting rid of the deduction.
If Trump preserves the deduction, however, that would force lawmakers to scramble to make up lost revenue they expected would come from the deduction's elimination.
According to the Tax Policy Center, eliminating the SALT deduction would increase tax revenues to increase by $1.3 trillion over 10 years. Trump's plan, according to the TPC, already would increase the federal deficit by $2.2 trillion over a decade, but the budget expected to be passed by the Senate should only allow for an increased shortfall of $1.5 trillion.
GOP leaders were already beginning the process of scrambling to find another $700 billion in deductions to fit the tax plan. Keeping the SALT deduction could force leaders to look to higher rates than they wished on individuals and corporations.
In an interview on CNBC Thursday, Treasury Secretary Steve Mnuchin said that the administration is still considering how to address the SALT deduction.
"The idea is, you know, again, we don't want this to hurt New York and California and New Jersey and Connecticut and Illinois too much," Mnuchin said. "On the other hand, we can't have the federal government continue to subsidize the states and that's a major loophole we're trying to close in simplifying taxes."
When CNBC host Andrew Ross Sorkin noted that the federal government is not "subsidizing" these states since most of them are net payers to the federal government, Mnuchin simply said, "That's because a lot of rich people live in New York and California."