SALT Means Cutting Medicaid to Give Tax Cut to the Rich

Throughout the long battle over Donald Trump’s “one big beautiful” budget reconciliation bill, which is nearing its peak in the House right now, we’ve been told that a brave band of “GOP moderates” was fighting Medicaid cuts even as they fought on behalf of their blue-state constituents for relief from the cap on “SALT” (State and Local Tax) deductions. You got the sense they were the ideological opposites of the troglodytes of the House Freedom Caucus, who longed to really gut Medicaid and regarded SALT deductions as a subsidy for big-spending state governments in godless places like New York and California.

But as the final House Republican battles take place on the eve of the reconciliation bill being assembled, it’s becoming a lot clearer that there is a direct tradeoff between a higher SALT cap and the level of Medicaid cuts deemed necessary. Indeed, House Speaker Mike Johnson made it very plain, as The Hill reported:

Speaker Mike Johnson (R-La.) on Thursday signaled that changes will be made to the party’s mega-bill full of President Trump’s legislative priorities in order to win support from conservative and moderate Republicans balking at some of its provisions.

Those alterations, he warned, will not only include a larger tax break for blue states that several Republican moderates are demanding but also steeper spending cuts elsewhere in the bill, as fiscal hawks raise alarm that the legislation does not do enough to rein in the ballooning deficit.

“If you do more on SALT, you have to find more in savings.”

As of May 16, House Freedom Caucus rebels have blocked approval of the “big, beautiful bill,” presumably on grounds that it adds too much to the budget deficit. The remedy they will demand could be deeper Medicaid cuts, or paring back tax cuts, with their strong preference being the former, no doubt. So this could put “moderates” on the spot.

So which of these priorities are more important to the Republican “moderates”? Defending SALT or Medicaid? That could be the $64,000 question. But to fully understand the choices involved, it’s important to understand who, exactly, benefits from a big shaker of SALT deductions. Taxpayers from high-tax states, to be sure; prior to the imposition of a $10,000 cap in 2017, the states generating the largest average SALT deductions were (in order) New York, Connecticut, California, New Jersey, and Massachusetts. But it’s not just any old taxpayers from states like those that are the chief beneficiaries: It’s high-income taxpayers. For one thing, as of 2020, 90 percent of federal tax filers did not itemize deductions at all, so SALT deductions were a matter of indifference. For multiple reasons, wealthy folks are far more likely to itemize, and because they are in higher tax brackets they get vastly more benefit from available deductions.

Add it all up, and you find that before the cap was imposed, 91 percent of the benefit of SALT was harvested by taxpayers earning over $100,000. And the more the cap is raised, the more the benefits skew to the truly well-off, as a 2024 Tax Policy Center analysis showed:

A TPC analysis of a $25,000 SALT cap found three-quarters of the benefit of raising the cap to $25,000 would go to those making about $250,000 or more (the top 10 percent of households).  

Likewise, a full repeal would mostly benefit high-income earners. A TPC analysis found the top 1 percent of earners (making about $1 million or more annually) would get 43 percent of all the benefit from a repeal. Their after-tax income would climb by about 1.6 percent, or roughly $35,000.   

The great Democratic battle cry of 2025 has been that Republicans are “cutting Medicaid to give tax cuts to the rich.” That may be truer of Republican “moderates” than of the House Freedom Caucus members, insofar as they are fighting for more tax cuts for the rich than anyone else, even knowing that, according to Mike Johnson, it means more Medicaid cuts.

You probably won’t hear much from Democrats along these lines — even though the GOP “moderates” mostly sit in seats Democrats badly want to flip to get control of the chamber in 2026 — because a lot of them are rattling the cup for high-income taxpayers who’d love to chow down on those tasty SALT deductions going forward. After all, the Democratic leader of the Senate, and four of the five senators in top leadership posts, are from New York, Illinois, New Jersey, and Massachusetts. In the House, the Democratic leader is also from New York, and four of the five people in top leadership posts are from New York, California, and Massachusetts.

I’m sure all these worthies will vote against the “big, beautiful bill” when push comes to shove, but won’t draw a lot of attention to the specific sufferings of Medicaid beneficiaries attributable to a boost in allowable SALT deductions. But these are the sort of tradeoffs that really matter right now.