The state and local tax (SALT) deduction enables tax hikes and bigger government at the state level and eliminating it can help fuel tax cuts that grow the economy. That’s the conclusion from the latest paper released by the National Taxpayers Union Foundation (NTUF), called “What’s the Deal with the State and Local Tax Deduction?” This is the latest in a series of papers from NTUF on key issues in tax reform.
NTUF’s Executive Vice President Andrew Moylan said, “The SALT deduction is a boon to high-tax, big spending states like California, New York, and Illinois, but it comes at the expense of taxpayers across the country. Despite all the noise from special interests, the facts show that eliminating SALT could help enable cuts in taxes that fuel economic growth and reduce staggering compliance burdens to the benefit of all taxpayers.”
The NTUF analysis points out that the overwhelming majority of the benefits of SALT flow to wealthy taxpayers, disputes the notion that the deduction prevents “double taxation,” and underscores SALT’s contribution to tax hikes and overspending on the state level. The paper takes Illinois as a case study, since it hasn’t successfully passed a balanced budget in over 15 years. Even after rounds of damaging tax hikes, it still faces a budget gap because legislators have avoided necessary spending reforms.
The paper states:
“While it is true that some taxpayers would be impacted by elimination of the SALT deduction, it is undeniably true that many more taxpayers are being impacted by the existence of the deduction today. It has made governance more difficult by making necessary budget reforms less likely and harmful tax hikes (from which lower-income taxpayers can’t hide) more likely. It has been used to fight against common sense tax limitations, and to fight for tax increases, all on the premise that the feds will pick up a portion of the tab.”
Moylan concluded by saying, “Congress has a historic opportunity to finally strike one of the most enduring and economically harmful deductions from the tax code. It should seize the opportunity and use the elimination of the state and local tax deduction to cut harmful taxes elsewhere in the code.”
This paper is the third in a series titled What’s The Deal With..., with each designed to provide non-technical explanations of a highly technical tax policy issue – and options for addressing it. The first in the series covered options for addressing base erosion, while the second covered full expensing and cost recovery policy.
NTUF is a non-partisan research and educational organization dedicated to showing Americans how taxes, government spending, and regulations affect them. More information is available at ntu.org/foundation/.