The Impact of Eliminating the State and Local Tax Deduction Report

Year: 
2017

As part of its tax reform efforts, Congress is debating whether to eliminate the ability for taxpayers to deduct state and local taxes (SALT). Similar efforts have been attempted in the past, and they failed each time — for a simple reason. If SALT were repealed, almost 30% of taxpayers, including individuals in every state and in all income brackets, would be adversely impacted. In 2014, the most recent year for which data are available, that included over 43 million tax units representing well over 100 million Americans. Additionally, more than 50% of the total amount of the SALT deduction went to taxpayers with adjusted gross incomes (AGI) under $200,000.

Since the federal income tax was adopted in the early 20th century, it has been recognized that independent state and local government tax structures should be respected. The deduction of state and local taxes has contributed to the stability of state and local tax revenues that are essential for providing public services. State and local governments must balance their budgets every year, so any change that disrupts the stability of their tax structure will harm their ability to fund those essential services.

This report shows the impact of eliminating the SALT deduction on taxpayers and local governments.