SALT Deduction Relief in Trump’s Tax Plan: Winners, Losers, and the Fiscal Tightrope

As the 2025 expiration of the $10,000 state and local tax (SALT) deduction cap looms, President Trump’s proposed tax package has reignited debates over who stands to gain—and who might lose—from SALT relief. The stakes are high: the cap’s removal or modification could reshape federal revenue, state budgets, and investor portfolios. Here’s who emerges as the likely winners, the fiscal hurdles ahead, and the implications for markets.

The SALT Cap: A Tax Break on the Brink

The SALT deduction, which allows taxpayers to offset federal income with state and local taxes paid, was capped at $10,000 under the 2017 Tax Cuts and Jobs Act (TCJA). The cap disproportionately hurt high-income residents in high-tax states like California, New York, and New Jersey. Now, with the cap set to expire by 2026, Trump’s plan proposes three paths: raising the cap to $20,000 for married couples, fully repealing it, or implementing targeted adjustments.

Winners: High-Income Households and High-Tax States

The biggest beneficiaries would be affluent households in high-tax regions. A full repeal of the SALT cap would direct 75% of its benefits to households earning $430,000 or more, according to the Tax Policy Center. Even a $20,000 cap increase would primarily aid those earning over $200,000. For example, a New York City couple paying $35,000 in state income and property taxes would gain an additional $15,000 in deductions under full repeal, lowering their federal tax bill by roughly $5,000.

Real estate markets in these states could also see a boost. Removing the SALT cap would reduce the “tax penalty” for owning high-value homes in states like California, potentially lifting demand for luxury properties.

The Fiscal Tightrope: Costs and Political Risks

The catch? Fiscal constraints loom large. Fully repealing the SALT cap would cost $1.2 trillion over a decade, per the Committee for a Responsible Federal Budget. Pairing this with Trump’s other tax cuts—like exempting tips and Social Security benefits—could push the national debt to 149% of GDP by 2035, far exceeding current projections.

Republicans face a bitter trade-off: satisfying lawmakers from high-tax states (e.g., Rep. Mike Lawler’s “No SALT, no deal” ultimatum) while avoiding a debt spiral. The Senate’s reconciliation rules further complicate matters, limiting tax cuts to $1.5 trillion over ten years. Any SALT relief must either be paired with spending cuts or scaled back to avoid triggering the “Byrd Rule,” which blocks deficit-increasing provisions.

Losers: Federal Revenue and Fiscal Hawks

The losers are clear: federal coffers and deficit hawks. The Tax Foundation estimates extending TCJA provisions—including any SALT modifications—would reduce revenue by $4.5 trillion through 2034, even if only a $20,000 cap is adopted. This could force cuts to infrastructure, defense, or entitlement programs to offset costs.

Middle-class households in high-tax states also stand to gain little. Over 90% of filers use the standard deduction ($30,000 for couples in 2025), meaning most won’t itemize—and thus won’t benefit from SALT changes.

Investment Implications: Follow the Fiscal and Political Signals

Investors should watch three key areas:

1. Real Estate and High-Tax States: If the cap rises, demand for luxury homes in states like California could surge. The iShares U.S. Real Estate ETF (IYR) might gain, but only if SALT relief is locked in.

2. State and Local Bonds: States reliant on income taxes (e.g., New York, New Jersey) might see reduced pressure to cut rates, potentially stabilizing municipal bond yields.

3. Equity Markets: A compromise SALT deal (e.g., a $20,000 cap) could boost consumer confidence among high-income earners, lifting luxury goods and discretionary stocks. However, a full repeal’s high cost could spook markets if it strains fiscal credibility.

Conclusion: A Compromise Likely, but Risks Remain

The most probable outcome is a $20,000 cap increase for married filers, satisfying some high-tax state lawmakers while avoiding the $1.2 trillion price tag of full repeal. This middle ground would deliver modest benefits to upper-middle-class households while keeping fiscal costs manageable.

However, investors must weigh the tail risks. If SALT relief fails, the 2026 TCJA expiration could trigger a $4.5 trillion tax hike on 62% of filers, destabilizing consumer spending. Conversely, a full repeal’s debt explosion could pressure interest rates and inflation—a double-edged sword for markets.

In short, SALT relief is a high-stakes game of fiscal and political poker. The cards are on the table—now lawmakers must decide whether to bet big or fold.