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Good riddance to the unlimited state and local tax deduction

When President Trump signed the Tax Cuts and Jobs Act into law in December, one of the most controversial changes to the tax code was the curtailment of the state and local tax (SALT) deduction. Under the old system, federal taxpayers could deduct from their federal tax bill all property taxes and either income or sales taxes paid to state and local governments. Going forward, the new law caps SALT at $10,000 per tax return, meaning that only the first $10,000 a taxpayer pays in state and local property, income, and sales taxes is deductible.

This change has garnered significant opposition in high-tax states where the new deduction cap is unlikely to capture the entire tax burden some taxpayers face from their state and local governments. New York Governor Andrew Cuomo even went as far as to say that the reforms to SALT “put a dagger in the heart of New York.” Many classmates I talked with during the tax reform debate last year also expressed concern at this change, especially if they were planning to work in New York after graduation. Reforming SALT, however, was a prudent policy change that eliminated an unfair subsidy to high-tax states and allowed lawmakers to use the savings to lower taxes for the middle class. I applaud the President and Congress for finally having the courage to fix this entrenched and unfair facet of the U.S. tax code.


The heterogeneity of state and local tax burdens gave many taxpayers a larger SALT deduction than others under the old tax code. The state and local tax burden faced by Americans differs widely throughout the country. In 2012, the average total state and local tax burden in the U.S. as a share of state income was 9.9 percent, with 33 states having a tax burden below that mark. The top three most-taxed states, New York, Connecticut, and New Jersey, all had total tax burdens above 12 percent, and seven states had total tax burdens below eight percent of state income. Furthermore, seven states currently have no state income tax and two more states only tax investment and dividend income. These imbalances led to vastly different potential deductions for federal taxpayers depending on where they lived.

Before the new tax law, SALT also subsidized high-tax state and local governments at the expense of the federal budget and taxpayers from low-tax jurisdictions. After accounting for population and income differences between states, the Tax Foundation concluded in a 2017 study that SALT “expressly favors higher-income earners and state and local governments which impose above-average tax burdens. The deduction’s effect is for lower- and middle-income taxpayers to subsidize more generous spending in wealthier states like California, New York, and New Jersey, reducing the felt cost of higher taxes in those states.” This subsidization effect occurs because, as the Tax Policy Center points out, any increase in deductible state and local taxes also brings a reduction in federal taxes through SALT. For instance, if a taxpayer in the 35 percent federal tax bracket saw a $100 state and local tax increase in a given year, that taxpayer would, in reality, only “feel” $65 of that tax increase because of SALT. At the same time, the state and local governments concerned still received $100 in additional revenue.

Over the long term, this system meant that state and local governments could raise taxes without taxpayers feeling their full effect, courtesy of the federal government. Because of the differences in total tax burden between states, high-tax, high-income states disproportionately benefited from this subsidy. As state and local tax rates increased, SALT deprived the federal government of more and more revenue from taxpayers in these jurisdictions. Consequently, federal tax rates were higher for everyone, including citizens of low-tax states, to fund these implicit subsidies for high-tax state and local governments.

The new reforms to SALT created a fairer tax code and made important tax cuts possible. The savings from reforming SALT will provide almost $1 trillion in additional revenue in the first decade, allowing for significant reductions to and simplification of individual tax rates. Additionally, the $10,000 cap changed SALT from an unlimited deduction that disproportionately benefited wealthy taxpayers into a policy that helps middle-class Americans. Every state levies property taxes, and states with lower property taxes often rely on other revenue sources, such as an income or sales tax. U.S. taxpayers can now deduct all property, income, and sales taxes paid to state and local governments up to the cap, no matter how their state chooses to collect its revenue. With middle- and low-income taxpayers benefiting most from the property tax portion of SALT under the old system, the new SALT protects most of that deduction for many taxpayers while maintaining a cap to prevent states with higher taxes from continuing to disproportionately benefit from the policy at the expense of the rest of the country. These changes create a more equal SALT deduction that no longer implicitly penalizes Americans living in low-tax states.

Critics of the state and local tax deduction cap often focus on the immediate effective tax increases some taxpayers in high-tax states will face once they are unable to deduct significant portions of their state and local tax burden from their federal tax bill. This argument ignores the reality that SALT has been subsidizing rising state and local taxes in many jurisdictions for decades while taxpayers in low-tax states pay for it through higher individual tax rates. The solution to this problem is not the continuance of an unfair system, but rather for high-tax states to fully weigh the costs and benefits of tax policies for their citizens. If legislators in Albany or Trenton want to increase state spending and pay for it with tax increases, it should be New Yorkers and New Jerseyans, not Texans and Floridians, who pay for it. 

Connor Pfeiffer is a senior in the history department from San Antonio, Texas. He can be reached at