Taxing Tuesday: the Revenge of SALT

Another week, more resets on the terms of negotiation

Mary Pat Campbell

Jun 18, 2025

For my cold open, have a chart, courtesy of the Tax Foundation:

They link to this: State Individual Income Tax Rates and Brackets, 2025, which is from February.

But it’s related to the SALT crap below.

Let us revel in the saltiness, or lack of saltiness, to come.

Senate puts SALT cap back where it was….to negotiate

16 Jun 2025, Politico: Senate GOP dials down SALT cap — for now

The Senate Finance Committee is set to dramatically dial down a key tax provision in the megabill text it plans to release Monday — a move that is already sparking fierce House GOP pushback.
The panel’s draft will maintain a $10,000 state-and-local-tax deduction cap in the GOP’s party-line domestic policy bill, same as current law, according to a person who was granted anonymity to discuss the yet-to-be-released proposal.

Yeah, my representative, Mike Lawler, isn’t happy.

But everything is negotiable.

This is part of a whole number of changes the Senate wanted to make of the deal the House wanted to put forth. So now the Senate hafe wanted to make.

Death of SALT workaround in NY

For example, the Republicans have wanted to kill various SALT cap workarounds, such as one in wide workaraounds in New York:

12 Jun 2025, EJ McMahon, Ever Upward: A tax hike for some key NY firms is lurking in Trump's tax cut bill

The SALT deduction take-back
Meanwhile, in a less widely noticed change, H.R 1 also would slash the now-uncapped SALT deductions of some business owners now opting to pay New York State’s Pass-Through Entity Taxes (PTET) and its local equivalent in New York City. So named because their profits pass (or flow) through to owners and shareholders, these businesses don’t pay federal or state corporate taxes at the entity level; instead, their owners pay individual income taxes on their share of allocated profits.
New York is one of 36 states that enacted some form of PTET following a November 2020 IRS notice that gave businesses other than C corporations an avenue for deducting 100 percent of SALT paid on attributed profits. The entity gets to claim a full federal deduction for PTET liability, a tax break effectively shared among the owners and partners¹—who, under New York’s version, get to claim a fully refundable credit for PTET payments on their state and city personal income taxes, thus avoiding double taxation.²
However, the same section of H.R. 1 that raises the SALT cap (Sec. 112018) contains language prohibiting a pass-through of uncapped SALT deductions to owners of firms defined by the Internal Revenue Code as Specified Service Trades or Businesses, or SSTBs. That category encompasses a broad range of professional service providers including investment advisers, managers and brokers; medical and dental practices; accountants; actuaries; and entertainment producers, among others.
There are exceptions to that exclusion—for example, insurance brokerages (though overwhelmingly unincorporated) are not classified SSTBs, and thus can continue to claim a full pass-through of SALT deductions. And while architectural and engineering firms are SSTBs, H.R. 1 specifically preserves their entity-level pass-through SALT deductions. (See explanatory posts from the Tax Foundation and the Bipartisan Policy Institute.)
Why the inconsistent treatment of unincorporated entities? The fiscal motive for Republican bill-drafters is fairly obvious: the professional firms and partnerships with the highest taxable incomes are concentrated in a few key professions in heavily taxed (and politically deep blue) states, particularly in the financial and corporate centers of New York City, San Francisco, and Chicago. Raising their federal taxes by capping their deductions will generate billions in annual federal income tax revenue to help offset a share of the cost associated with raising the SALT cap for everyone else. Indeed, the Tax Foundation estimates the business SALT changes will raise $73 billion between federal fiscal years 2025 and 2034, or a little less half the estimated added cost of the higher cap for individual households. A disproportionately large chunk of that is sure to come from affected New York businesses.

EJ McMahon has far more in the post.

Ever Upward

A tax hike for some key NY firms is lurking in Trump's tax cut bill

Embedded among the tax cut provisions of the pending federal budget bill is a potential tax increase for unincorporated professional service firms and partnerships—including some of the Empire State’s highest-earning taxpayers. If enacted, it would raise the already high cost of doing business in New York for a chunk of the securities industry, in parti…

6 days ago · 1 like · E.J. McMahon

EJ McMahon is in NY as I am (indeed, he’s with the Empire Center).

The issue is not the Senate, which isn’t interested in giving the well-heeled in blue states a bigger federal tax break, as can be seen with putting the SALT cap back at $10K.

It’s the House, where a few Republican reps like my representative, Mike Lawler, will need to work hard to get re-elected. He has been doing multiple town halls (and I went to one), standing in front of crowds packed with hostile Democrats.

It’s a tough situation for him and the others.

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