From the Institute on Taxation and Economic Policy (http://www.itep.org/):
From bad to worse, regressive to more regressive
The new federal tax law caps the amount of state and local taxes (SALT) filers can deduct at $10,000. A bi-partisan proposal in Congress would roll back this provision. Meanwhile, states, particularly those with a larger concentration of high-income earners, have been trying to figure out a way to use their tax codes to restore this benefit to taxpayers. Recent ITEP analyses and reports explain that undoing the SALT cap is neither easy nor desirable.
- Federal SALT repeal would make the tax overhaul even more regressive: The $10,000 SALT cap mostly affects the highest-income households. And it’s already well known that the federal tax law showers the most of its benefits on those very same households. ITEP senior fellow Steve Wamhoff writes that repealing the SALT cap while leaving the remainder of the tax bill in place would make the federal tax system more regressive. The analysis includes national and state-by-state data on the effect of SALT repeal.
- State SALT fixes would benefit the rich and may be unworkable: States are considering varied schemes to “work around” the new SALT caps, including replacing state income taxes with payroll taxes or converting state and local taxes into charitable contributions so taxpayers can deduct them on their federal taxes. ITEP Executive Director Alan Essig writes that both ideas would create more problems than they would solve.
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