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Jun 2, 2025  |  
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Timothy P. Carney, Senior Columnist


NextImg:Here’s how the SALT deduction drives down our birthrate

Former President Donald Trump’s tax reform cut rates for everybody and reduced one particular tax break for the rich: the deduction for state and local taxes (abbreviated as SALT). Democrats and some suburban Republicans want to lift the $10,000 cap on the SALT deduction.

There are plenty of reasons not to uncap SALT. Primarily, it would exacerbate budget deficits and inflation while almost solely helping high-income people. But also, the SALT deduction is one of many public policies that impedes family formation and contributes to our baby bust.

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The SALT deduction is a subsidy for the lifestyle and consumption decisions that result in high state and local taxes. Most importantly, the SALT deduction subsidizes owning expensive homes in high-tax locales. When you subsidize a thing, generally, the price of that thing goes up. Thus, an unlimited SALT deduction drives up the price of buying a home.

In the long run, the homeowner recoups that added cost in two ways: (a) He saves on federal taxes because of the deduction; (b) when he sells his home, the price is likewise inflated by the SALT deduction.

But think about the temporal effects here: This deduction, in effect, shifts wealth from the period when one is or would be forming a household to when one retires or is older.

In a culture where marriage rates and birthrates are at record lows, we should be shifting money the other way: toward people trying to get married and start families.

Here’s an economics paper that establishes that the SALT deduction drives up the cost of buying a home. Crunching numbers and controlling for other variables, the author concludes that capping the salt deduction slowed the growth of home prices. It’s reasonable to assume that uncapping this deduction would accelerate the growth of home prices.

Yes, many upper-income people would benefit from getting a bigger tax break, but their gain would be at the expense of people who want to buy their first home and start a family. In our current culture, with a baby bust and a crisis in marriage, we should be helping the young adults rather than the already comfortable.

When asked why millennials and Generation Z are not having babies, the most common explanation is "economics." This is a vast overstatement, as these generations are not poorer than boomers or Generation X were at their age. But it is true that we have a housing shortage and that home prices affect birthrates.

We need more babies, and so we cannot afford a tax break for rich homeowners.

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