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by Causes | 1.25.19

A bipartisan group of lawmakers representing districts with relatively high state and local tax burdens have offered a bill that’d eliminate the cap on the state and local tax (SALT) deduction.

The enactment of the Tax Cuts and Jobs Act in December 2017 capped the SALT deduction at $10,000 for taxpayers who itemize their tax return ― and taxpayers claiming the deduction can deduct income, sales, and property taxes up to the limit.
Introduced on the first day of the 116th Congress by House Appropriations Committee Chairwoman Nita Lowey (D-NY) and Rep. Peter King (R-NY) the SALT Deductibility Act would eliminate the $10,000 cap.

What are both sides saying?

Lowey offered the following statement when introducing the SALT Deductibility Act:

“Repealing the SALT deduction was a callous move designed to target New York taxpayers, who are taxed enough as is. That’s why I’m proud to reintroduce my bill. Protecting this deduction is more important than ever with the Trump Administration’s continued assault on the middle class. Our bill ensures that New York families see tax relief, not more tax burdens.”

Critics of efforts to lift the cap argue that a higher (or non-existent) cap on the SALT deduction encourages states and localities to impose higher taxes on their constituents, because the deduction takes the financial sting out of higher state and local taxes through a reduced federal tax liability. As Rachel Greszler, senior policy analyst in economics at the Heritage Foundation, wrote:

“Instead of having to pay the full cost of their taxes, state and local taxpayers who itemize their deductions can force taxpayers in lower-tax states to pick up a big portion — up to 40 percent — of their taxes. As a result, state and local lawmakers are quicker to raise taxes beyond the level that is needed to finance their essential services… If removing the property tax deduction (and other state and local tax deductions) would create a big burden for taxpayers in high-tax states, that’s a problem for state governments to address by lowering their tax burdens.”

Who benefits from the deduction?

The state and local tax deduction can only be claimed by taxpayers who itemize their returns, so it generally benefits higher earning taxpayers. According to data from our partners at USAFacts, a non-partisan civic data initiative, the average tax savings from claiming the deduction per return in 2015 for taxpayers making less than $61,000 was $144; whereas taxpayers making more than $113,000 saved $1,569 on average and the top 1% of taxpayers saved an average of $21,723.

In recent years, the aggregate amount of potential federal tax revenue foregone due to the SALT deduction has typically fluctuated between $42 billion and $75 billion per year ― reaching a peak of $104 billion in 2017 before dropping to just under $38 billion in 2018 (the first year in which the cap was in effect).

— Eric Revell

(Photo Credit: iStock.com / Nunthawut Somsuk)

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