Provision in ‘big, beautiful bill’ could ‘blunt’ pressure for lower IL
taxes
[July 03, 2025]
By Catrina Barker | The Center Square contributor
(The Center Square) – As Congress weighs the “big, beautiful bill,” a
proposed hike to the state and local tax deduction cap is drawing fire
for favoring taxpayers in high-tax states, like Illinois.
Taxpayers who itemize can deduct up to $10,000 in state and local taxes
from their federal taxes—a cap set by the 2017 tax law. A provision in
the legislation the U.S. Senate sent back over to the House Tuesday
would raise that cap to $40,000 for most people, but phase it out for
those earning over $500,000.
“This is considered to be specifically a subsidy for high-income
taxpayers in high-tax states because there are some lower-tax states
where even relatively high earners aren't paying $10,000 in state and
local taxes due to low property and income taxes,” said Tax Foundation
analyst Katherine Loughead.
Loughead said all federal taxpayers would essentially be on the hook to
offer this increased deduction.
"The federal changes aren't fully paid for — they will definitely add to
the deficit and national debt by a significant amount,” said Loughead.
“The exact cost is still being determined, depending on the final
version of the bill. But ultimately, this is a subsidy that's not fully
offset, and taxpayers across the board are covering the cost, even
though it's only going to those who qualify."
Critics say this change could relieve political pressure on state
lawmakers to lower property or income taxes, especially in states like
Illinois where residents pay among the highest property taxes in the
nation.
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According to Loughead, only about one in ten taxpayers itemizes
deductions, and many won’t come close to the threshold needed to
take advantage of the break.
“If they only have a relatively small amount of state and local tax
liability—say $3,000 or $5,000—and their other deductions don’t add
up to more than the standard deduction, they’ll just take the
standard,” Loughead explained. “Those taxpayers will face higher
property taxes as state taxes continue to rise, and they’ll also
continue to pay the same at the federal level.”
Meanwhile, those with larger tax bills who can itemize will see a
greater benefit—effectively dulling the impact of local tax hikes
for wealthier residents and creating a disparity in tax treatment.
“In a flat-income tax state like Arizona, where everyone pays 2.5%
income tax, you’d need to earn a very high income to exceed $10,000
in state income taxes,” Loughead said. “Even higher earners in
low-tax states may not hit the deduction threshold because their
overall state and local taxes are relatively low. That’s why this
expanded SALT deduction mainly benefits taxpayers in high-tax
states.”
Supporters of the expanded SALT deduction argue it simply restores
fairness to residents in high-cost areas, who may feel doubly
penalized by both state and federal taxes.
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