Policymakers will soon decide the fate of the state and local taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
(SALT) deduction cap as they consider extending the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA). Since 2018, individual SALT deductions have been capped at $10,000, offsetting part of the cost of the broader tax cuts. These cuts for individuals all expire after the end of this year.
The looming expirations have sparked debate about making the cap more generous as part of Congress’s reconciliation package, along with possible limits on pass-through workarounds and SALT deductions taken 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 single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.
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 strategically allow pass-through owners to pay state taxes at the firm level, which qualifies for a full deduction against federal individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.
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Certain workarounds are permitted by the IRS under current law, but policymakers may choose to disallow them. We estimate ending pass-through workarounds would raise about $211.1 billion over 10 years on a conventional basis under a permanent $10,000 SALT cap.
Under current law, pass-through owners can fully deduct property taxes associated with their business. If policymakers disallowed property tax deductions for pass-throughs, this would raise $281.2 billion over 10 years on a conventional basis. 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. But the limits would come at a substantial 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. Pairing permanent TCJA individual tax cuts with new limits on business SALT deductions would shrink the economy, reduce American incomes, and increase the federal budget deficit, undermining the policy goals of TCJA permanence.
Table 2. 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 includes the economic and revenue impact of making the individual $10,000 SALT deduction limit permanent. GNP estimates include the impact of federal budget deficit changes on American incomes.
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