What the SALT Cap Could Mean For Long-Term Growth in Texas

The 2017 tax reform, commonly known as the Tax Cuts and Jobs Act (TCJA), capped the state and local tax (SALT) deduction at $10,000. Although many taxpayers in Texas were minimally affected by this reform, large shares of high-income taxpayers in other high-tax jurisdictions, like New York and California, experienced a sizeable increase in their effective marginal tax rates, incentivizing migration to low-tax jurisdictions.

Evidence shows that taxpayers began moving to low-tax jurisdictions at a higher rate immediately after the passage of the TCJA, and Texas—a low-tax jurisdiction—was no exception. After dipping in 2017 and 2018, net migration began rebounding in 2019 (see figure). Then, following the pandemic-related stall in 2020, domestic migration to Texas surged in the subsequent years.

Several other factors combined to precipitate this surge in migration, including a major labor market disruption, abundant housing in Texas, a brief low-interest-rate era, and a surge in remote work. However, the provisions in the TCJA that capped the SALT deduction at $10,000 were set to expire at the end of 2025.

The stakes were high for all low- and high-tax states. Without tax reform, the unfettered SALT deduction would reintroduce effective subsidies for high-tax jurisdictions in 2026, tilting the scale of domestic migration in their favor. That outcome would potentially undo the population gains experienced by Texas in the years immediately following the pandemic. What resulted instead was a near-term compromise.

Source: U.S. Census Bureau

The One Big Beautiful Bill Act signed into law in 2025 implemented a $40,000 SALT cap with an income-based phase-out of the cap, limiting at $10,000 for higher income households. Unlike the earlier $10,000 cap, which was the cap regardless of filing status, the $40,000 cap reflects a $20,000 combined cap for joint filers. Moreover, the provision expires after 2029, with the cap returning to $10,000.

While the temporary expansion of the SALT deduction could create a slight near-term headwind for Texas population growth, its expiration after 2029 could turn into a major boon to the state’s long-term outlook. In fact, households looking past the next five years for economic value might already be influenced by the long-term prospect of the tax reform.

Although any emergent tax reform could undo changes to the SALT cap, the outlook under current law tilts the scale back in favor of Texas.