A Government Finance Officers Association (GFOA) report, The Impact of Eliminating the State and Local Tax Deduction, calculates the impact on individual taxpayers in each congressional district and illustrates a strong linkage between the deduction and homeownership. The report, released July 11 at a Capitol Hill briefing, concludes that if the state and local tax (SALT) deduction were repealed, individuals in every state and all income brackets would be adversely impacted.
As part of its tax reform efforts, Congress is debating whether to eliminate the SALT deduction, which allows taxpayers to deduct state and local property, income and sales taxes to reduce their federal tax liability. The SALT deduction, as well as other such deductions for mortgage interest or charitable giving, are routinely targeted whenever discussions to reform the federal tax code take place. Eliminating deductions in a tax reform package would allow the federal government to collect new revenue, which would offset the loss in revenue resulting from the lowering of federal income tax rates, which is a key GOP objective in tax reform.
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The more notable findings from the report, which analyzed data from 2014, include:
- Almost 40 percent of taxpayers earning between $50,000 to $75,000 per year and more than 70 percent of taxpayers earning between $100,000 to $200,000 per year itemize deductions and use the SALT deduction
- Over 50 percent of the total amount of the SALT deduction goes to taxpayers making less than $200,000 a year; and
- The SALT deduction is not a red state v. blue state issue, taxpayer use of the deduction is widespread among all states regardless of geographic area, political identification, wealth, or economic activity.
- The SALT deduction was one of six deductions allowed under the original federal income tax code enacted in 1913. For well over a century it has served as a core pillar supporting the federal-state-local partnership that maintains the essential public services upon which Americans rely.
State and local governments utilize the revenues from property, sales and income taxes to help finance infrastructure projects, law enforcement, emergency services, education and many other services. Eliminating this provision could limit state and local control of our tax systems, and constrain the policy options available to address local challenges and increased responsibilities due to the devolution of federal programs.
NACo, along with its Big 7 partners (National Governors Association, National Conference of State Legislatures, Council of State Governments, National League of Cities, International City/County Management Association and the U.S. Conference of Mayors) and the National Association of State Budget Officers, joined GFOA in releasing the report.
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