Will Californians' taxes go down with Trump tax cuts? It could come down to one thing

San Francisco Chronicle​

09-05-2025

Republican lawmakers are debating a tax policy that could have major implications for Californians.
The Tax Cuts and Jobs Act of 2017, enacted during the first Trump administration, imposed a limit on how much of your state and local taxes could be deducted from your federal taxable income. The limit, referred to colloquially as the 'SALT cap,' was set at $10,000.
It is set to expire at the end of the year, along with many other provisions of the 2017 Trump tax bill. But Republicans are preparing a new package of tax changes, and whether to raise or eliminate the SALT cap has been a major talking point.
For more than a century, there was no limit on SALT deductions. The deduction was first added to the tax code in 1913 with the idea that people shouldn't be taxed twice on their income — and thus, you should be able to subtract what you've already paid in state and local income taxes, property taxes and personal property taxes from the amount on which you're being assessed for federal taxes.
But after Trump took office in 2017, Republicans saw a new $10,000 cap as a much-needed source of tax revenue. It also happened to target states that didn't vote for Trump.
The impact of the cap was disproportionately felt by higher-income people in coastal blue states, including California and New York. That's because to claim the SALT deduction rather than the standard deduction, taxpayers file an itemized return, and higher-income people are more likely to itemize their deductions. Also, wealthy blue states tend to have higher taxes because they offer more government services, and have higher home prices that command higher property taxes. (Though California's Prop 13 property tax increases for homeowners who stay put.)
To compare: The median existing home-sale price in March was $403,700 nationally, $884,350 in California and a whopping $1.4 million in the Bay Area, according to data from the National Association of Realtors and its California branch.
Richard Pon, a certified public accountant and certified financial planner based in San Francisco, said his clients were initially upset by the new limit on deducting state and local taxes. But the 2017 law also increased the income level at which the alternative minimum tax, or AMT, kicks in. Pon said many of his clients, most of whom make over $200,000 annually, were no longer subject to AMT under the changes, and so owed less as a result, helping offset the losses from the SALT cap.
But politicians from both sides of the aisle representing California, New York and other affected states have been advocating to raise or eliminate the SALT cap. While campaigning last year, Trump courted New York voters with a post on Truth Social saying he would 'get SALT back.'
The SALT cap led to an estimated 1 million California taxpayers owing $12 billion more annually, according to data from the state Franchise Tax Board cited by CalMatters in 2019. The majority of those taxpayers, 62%, made between $100,000 and $250,000 annually, the data showed.
Funds raised by the newly imposed SALT cap helped offset other tax cuts in Trump's signature legislation: In addition to limiting the SALT deduction, the TCJA doubled the standard deduction, eliminated personal exemptions and a number of miscellaneous deductions, reduced the maximum mortgage interest deduction, doubled the maximum child tax credit to $2,000, created a $500 credit for older dependents and created a generous deduction for many pass-through entities not subject to corporate income tax, like businesses with sole proprietorships,.
Almost all of its changes for individuals are set to expire at the end of this year, while nearly all of the corporate ones, including cutting the corporate tax rate from 35% to 21%, are permanent.
Part of the debate in Congress right now comes down to whether the SALT cap will be lifted entirely, raised, or limited to certain income levels. Pon said another consideration would be pegging the amount to inflation — the $10,000 hasn't come up for discussion since 2018 — or removing the marriage penalty on the limit, since under the current tax code the cap is $10,000 for both single people and for married couples filing jointly.
'I don't see that there's a real interest from anybody, Republican or Democrat, in helping millionaires and billionaires,' said Rep. Nicole Malliotakis, R-N.Y., according to Politico. She proposed lifting the cap for people with household incomes 'under the $400,000-$500,000 range.'
But others — so-called 'SALT Republicans' from predominantly blue states — say they want the SALT deduction limit completely eliminated. And on the other end of the spectrum, 32 Republicans from the House signed a letter saying they wouldn't support the new tax package unless there were $2 trillion in concrete spending cuts, and the bill must not add anything to the deficit, meaning raising or lifting the SALT cap would have to be offset by increased taxes or decreased spending elsewhere.
So the future of the SALT cap is still up in the air. GOP leaders have been hoping to get a vote on the new tax package set for the House Ways and Means Committee this week. If you feel strongly about it, consider getting in touch with your elected representative to let them know. (You can look them up on the House ' Find Your Representative' webpage.)