OPINION:
The Trump tax cuts are due to expire at the end of the year. To prevent this, Congress must find ways to extend them that can pass.
Contrary to what one might think, this is easier said than done. Some in Congress feel the need to find revenue that allows the expiring rates to be brought down once again. One way to do this is to cap the federal corporate deduction for state and local taxes, known as C-SALT.
It’s a bad idea that jeopardizes American industry, especially energy, when domestic growth is desperately needed. Lawmakers who support President Trump’s desire to spark a manufacturing and energy boom while protecting businesses and households from automatic tax hikes should reject it.
The C-SALT deduction isn’t the loophole some have claimed it to be. It’s how businesses calculate net income across diverse state tax systems. Unlike the federal SALT deduction, which was capped in 2017 on the personal side of the ledger, it reflects actual operating costs.
Ending or capping C-SALT would be a backdoor tax increase on millions of firms. The Treasury Department warns that 37% of any corporate tax hike would burden households earning less than $300,000 annually, not elites but middle-class families, in states such as Texas, Pennsylvania and Michigan.
The greatest impact would be on the energy sector. Energy companies, particularly those in oil and gas, rely on capital-intensive investments tied to specific geographies. Unlike other businesses, oil and gas companies cannot relocate to lower their tax burden. They have to extract the energy from the ground where they find it.
That’s already an expensive proposition that has been lucrative for state governments. In 2021, the oil and gas industry contributed $208.8 billion in state and local taxes, including severance taxes exceeding $8.48 billion in Texas and $3.06 billion in North Dakota. Capping C-SALT penalizes them unfairly, discriminating against an industry that powers our homes, fuels our vehicles and supports our supply chains.
Mr. Trump regards the rebirth of domestic manufacturing and energy independence as pillars of his economic plan. Capping C-SALT runs counter to his desires. Amid volatile markets and regulatory pressures, energy firms would face higher effective tax rates, diverting capital away from exploration, necessary infrastructure investments and job creation.
Rep. Thomas R. Suozzi, New York Democrat and a certified public accountant, describes it as a “stealth federal tax increase of between about $430 billion and $800 billion” over 10 years. He is right. The Tax Foundation estimates that removing state income tax deductions could generate $223 billion over 10 years, with property tax limits nearly doubling that figure, adding pressure to companies that contribute to job creation and infrastructure development.
The fallout wouldn’t be limited to energy. Manufacturing contributes 6.3% of the value added to state and local taxes and would be adversely affected. States such as Michigan and Pennsylvania rely on these companies, which are vital for industrial revival. A C-SALT cap would increase costs, reduce competitiveness and deter Trump’s promised investments. Mining, at 5%, and utilities, at 5.6%, face similar risks, amplifying the economic impact.
Critics argue that C-SALT limits resemble the individual SALT cap, which restricts subsidies for high-tax states. However, personal SALT benefits wealthy itemizers, while corporate SALT reflects costs associated with sales rather than corporate headquarters. For example, a Texas oil company pays severance taxes based on production, not political considerations. State apportionment, where 10% of sales triggers tax liability, ensures businesses cannot escape their obligations. They must adapt or face the consequences.
Some cite pass-through businesses capped at $10,000 for individual SALT to justify parity. However, parity could be achieved by raising that cap instead of imposing new corporate burdens. States’ pass-through workarounds already cost the federal government $20 billion annually, evidence that businesses need these deductions to thrive. A C-SALT cap would instead reinforce a flawed policy, risking 24,000 jobs if income tax deductions are cut or 147,000 if property taxes are included, according to Tax Foundation modeling.
Globally, property tax deductions are standard, although income tax rules differ. Germany disallows some, while Switzerland permits others. A broad C-SALT cap would disadvantage U.S. firms compared with those in Canada or Japan, where provincial taxes aren’t deductible but other levies are. Why weaken us now?
Preserving C-SALT represents a sound economic strategy. When paired with research and development expensing (up 0.1% of gross domestic product) or bonus depreciation (up 0.5%), growth can help mitigate revenue loss. Long-term savings could enable more initiatives, such as structural expensing, which benefits the energy and manufacturing sectors. Catherine Schultz from the Business Roundtable describes the 21% corporate rate as sacred; imposing a C-SALT cap threatens this stability.
Congress must take decisive action for our future. Although capping C-SALT may seem attractive to fund populist initiatives, it fundamentally undermines Mr. Trump’s vision and unfairly burdens crucial industries. The energy sector, which already contributes billions of dollars in severance taxes, deserves equitable treatment, not a punitive tax grab. By preserving the C-SALT deduction, we can ensure the strength of American industry and protect the hardworking families in the heartland who rely on it. Anything less is a disservice to those who fuel our economy and support our nation’s prosperity.
• Former Rep. Todd Tiahrt represented Kansas’ 4th Congressional District.
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