Why the SALT Deduction Matters. Why You Should Save It.


Now is the time to let your senators and representatives know that you oppose elimination of the SALT deduction and that they should vote against any tax proposal that would do this.

Over the next weeks and months, Congress will be debating legislation to “reform” the nation’s tax system. That debate will focus on many things, including corporate taxes, inheritance tax, individual tax brackets, and charitable tax deductions, among others. But none of the debates may prove as important to states, counties, cities, and towns as the state and local tax (SALT) deduction, which allows individuals and households to deduct what they pay to states and localities in the form of income, property, and sales taxes from their federal returns. Both the House and Senate are prepared to eliminate some or all of the SALT deduction to make up for revenue losses resulting from proposed cuts to the corporate and individual tax rates.

Why does this matter? 

The Tax Policy Center estimates that 30 percent of taxpaying households – about 39 million — take the SALT deduction each year. 

These taxes are equally important to the states and localities that collect them. With these funds states and local governments can pay for the services we want and demand, and often take for granted.

These taxes are important to the federal government.

Four hundred twenty-five billion dollars of the $2.3 trillion that is collected by states and localities each year from taxpayers and the federal government is spent on infrastructure – roads, bridges, water treatment plants, and critical buildings like schools and hospitals, to name just a few.[1]

These investments by state and local governments are so significant that overall, the federal government contributes only 23 percent of all the funds spent on infrastructure. Without these state and local funds, the cost to the federal government of building and maintaining our infrastructure would be considerably greater.

According to the National Association of Counties (NACo), state and local governments deploy revenues from state and local property, income, and sales taxes to finance . . . local law enforcement, emergency services, education, and many other services[2] in addition to those used for infrastructure.

Without these funds millions of miles of roads and bridges, mass transit systems, schools, libraries, hospitals, and nursing homes would not be built. Residents might not have access to the goods and services that they currently do, because the resources needed to pay for these services might not exist.

The deduction also reflects the historic belief that individuals should not be taxed twice – at the state and local level and again at the federal level. Moreover, it would shift the intergovernmental balance of taxation and limit state and local control of our tax system, according to NACo.

But now that deduction is under attack. House and Senate Republicans have incorporated into their budget blueprints a plan to eliminate some or all of the SALT deduction, something that could have devastating impacts on states, counties, cities, and the residents who live there.

Eliminating the state and local tax deduction would subject a larger share of taxpayers’ itemized income to federal taxation by adding back in the local taxes already paid as taxable income. It would also put acute pressure on state and local governments to reduce their taxes dramatically. New York Governor Andrew Cuomo said that if the SALT deduction is eliminated New York State “will be destroyed” because of that pressure on the state and local governments to reduce or eliminate some taxes. Other high tax states like California and New Jersey will feel the same pressure to reduce taxes from their state and local taxpayers, potentially cutting off major sources of revenue.

Here are the facts[3]

SALT benefits the middle class.

Nearly 87 percent of taxpayers who claim the SALT deduction have an adjusted gross income (AGI) under $200,000.

Taxpayers in all 50 states – in both Democratic and Republican congressional districts – claim SALT. Of the top 20 highest-SALT congressional districts, 45 percent have Republican representatives.

If Congress eliminates SALT, middle class homeowners will see their taxes increase. Homeowners that make between $50,000 and $200,000 would see an average tax increase of $815 – even if the standard deduction is doubled.

More facts

States and localities generally raise about $2.3 trillion in taxes each year. Of that, $425 billion are used to help pay for roads, transit, education, and public infrastructure. If states and localities reduce their revenue collection and infrastructure spending, the state of America’s crumbling infrastructure would likely get much worse.

State and local taxes pay for a wide range of important services beyond those previously mentioned – they also pay for higher education, public welfare, and public safety.

What does this mean?

If states and localities are forced to reduce their taxes, many community services will be reduced or eliminated. Above all, families and individuals across the nation will be likely to experience diminished quality of life.

What can I do?

As efforts to reform the nation’s tax system gain steam, so too must efforts to preserve this vital deduction – the state and local tax deduction.

Now is the time for elected officials and those that value good government to tell their senators and representatives that eliminating the SALT deduction may lead to significant, long-term damage in our communities – and ultimately, states, counties and cities will bare that responsibility.

Contact your senator and representative to tell them that while it may be the time for tax reform, it is not the time to eliminate the SALT deduction. For more information see GFOA’s report on revenue losses by congressional district and the Big 7’s Americans Against Double Taxation.

[1] http://www.taxpolicycenter.org/briefing-book/what-breakdown-tax-revenues-among-federal-state-and-local-governments
[2] www.naco.org
[3] http://www.americansagainstdoubletaxation.org