President Donald J. Trump wants Congress to extend expiring provisions of his 2017 Tax Cuts and Jobs Act (TCJA). A continuation of current tax policy, avoiding the expiration of personal tax cuts memorialized in the original TCJA, would lead to growth in a U.S. economy in dire need of pro-growth policies coming from the federal government. It is important that Republicans in Congress don’t negotiate against themselves and eliminate pro-growth provisions, like the corporate state and local tax (C-SALT) deductions in current law, to offset projected lost revenue from other proposed tax cuts.
Raising taxes on main street businesses in high tax states will hurt job creators and may pave the road to a recession in the U.S. economy. Some in Congress are targeting passthroughs and traditional corporate organizations for a tax hike that would impose an approximate 6% tax hike and slow growth. Targeting C-SALT for tax hikes would be a mistake.
Corporate tax law is complicated, but there are two different types of organizations that are subject to special tax treatment. Pass through entities like partnerships, S-corps, and LLCs pay the pass through entity tax (PTET). Large corporations pay C-SALT. These taxes work very differently, yet both are being considered to restricted in a way that would raise revenues for the federal government that Congress wants to use to pay for other tax cuts.
For the last 100 years, corporations have paid state corporate income tax and take a federal tax deduction for state corporate income taxes. Pass through entities like S-corps and partnerships do noy pay federal taxes themselves. Rather, their profits are reported to their owners, who pay taxes on the profits on their 1040s. Before TCJA, these owners deducted their state personal SALT in full, which also accounted for the taxes owed on business profits. When the law was changed, 36 states started allowing S-corps and partnerships to pay state taxes on their profits at the entity level, instead of the owner level. The entities then got a federal tax deduction for the taxes paid which is the same way corporations do it.
In addition, both corporate and non-corporate businesses have always been able to deduct other state and local taxes on their businesses like business property tax, business license taxes, severance and extraction taxes for energy companies, and excise taxes. Congress is looking to get rid of these as deductions against profit. This would be a shameful sneaky new tax.
Prominent tax organizations are raising alarms about the possibility of Republicans in Congress using C-SALT to pay for other tax cuts on the individual side. According to The Tax Foundation, on March 3, 2025, “House Republicans are considering new limits on corporate state and local tax (C-SALT) deductions as an offset option for a broader reconciliation bill extending 2017 tax cuts and other spending changes.” The problem is that “while capping C-SALT has superficial appeal in perceived parity with personal limits, it rests on flawed assumptions about the nature of individual and corporate income taxes,” because “the ability to deduct expenses to yield a tax base of corporate profits is intrinsic to corporate net income taxation.” They conclude that a cap on C-SALT would hike corporate taxes and harm businesses and industries with greater exposure to high state corporate taxes.
More specifically, the concern is that Blue State Members of Congress want to cap the C-SALT to offset lost revenues if they increase the personal state and local tax (SALT) cap from $10,000 to $100,000. It would be a political and policy mistake to hurt the job creating business community to benefit largely wealthy individuals in high tax blue states like California and New York. There is a policy argument to remove a reward to blue state high tax governments by capping personal deductions for individual taxpayers in those states. There is no good policy argument for a low cap or elimination of C-SALT, because that would be a backdoor increase in corporate taxation that will disproportionally hit industries and businesses with high exposure to state taxes. In other words, robbing from job creators to reward wealthy individuals.
Tax policy can be complicated, but it is simple economics to understand that hiking taxes on corporations will slow economic growth. Republicans in Congress should back away from any ideas to use C-SALT tax hikes on main street businesses to provide tax relief elsewhere. The U.S. economy will boom if tax cuts are extended, and a ‘Big Beautiful’ Trump tax bill may be just what we need to turn the economy around.
Brian Darling is former Counsel for Sen. Rand Paul (R-KY).