House Republicans are considering implementing new limits on corporate state and local tax (C-SALT) deductions as part of a broader reconciliation bill that seeks to extend the 2017 tax cuts and introduce other spending changes. The proposal aims to raise federal revenue, but experts caution that it may also lead to reduced long-run economic output, increased burdens on businesses operating across multiple states, and a more complex corporate tax structure.
Policymakers have various options for constructing a C-SALT limitation. Corporations pay different types of state and local taxes such as corporate income, property, sales, excise, and severance taxes. Each base definition would result in different revenue and economic impacts.
For instance, repealing C-SALT deductions for corporate income tax alone could generate approximately $223 billion over ten years. Expanding this repeal to include property taxes might raise an additional $209 billion within the same period. Extending limitations or repeals to sales and other taxes would further increase revenue collection but also cause more significant economic harm.
According to the Tax Foundation General Equilibrium Model from February 2025, disallowing corporate SALT deductions for corporate income tax is estimated to reduce long-run GDP by 0.1 percent and decrease hours worked by 21,000 full-time equivalent jobs. Further restrictions on property tax payment deductibility could reduce GDP by 0.2 percent and decrease hours worked by 46,000 full-time equivalent jobs.
The debate around limiting C-SALT deductions partly draws parallels with personal SALT deduction caps aimed at reducing distortive tax benefits for high earners in high-tax jurisdictions. However, critics argue that this analogy misunderstands the nature of corporate income taxation and factor apportionment used in determining state tax liabilities.
Some suggest that restricting C-SALT deductions may create parity between corporations and pass-through businesses subject to individual SALT caps until the end of 2025. Nonetheless, others propose allowing full business SALT deductions for both entities as a neutral treatment approach.
The discussion surrounding C-SALT limitations highlights concerns about potential arbitrary increases in effective corporate income tax rates, which could disproportionately affect certain businesses depending on their exposure to state taxes.
