There is a bit of political theater that plays out in Washington every few years—lawmakers from high-tax states storm the stage to defend the state and local tax (SALT) deduction, as though it were etched in the Constitution. The arguments run the gamut: from its ability to protect middle-class families, to its support for essential services, and the prevention of the dreaded “double taxation.” What they won’t say, however, is that it overwhelmingly benefits wealthy households, distorts federal tax equity, and props up state tax regimes that should have to answer to their own voters.
So here is the relevant question, perhaps: why does this deduction exist at all?
SALT Basics
Let’s start with definitions. The SALT deduction allows filers who itemize to subtract the amount they pay in state and local taxes—property, sales, and the like—from their federal taxable income. On its face, this sounds reasonable—who doesn’t want a break on taxes?
But digging a little deeper, the logic starts to fray. Consider two taxpayers with identical incomes: one in Texas, with no income tax, and one in California, with a high state income tax. Under the SALT deduction, the Californian gets a federal tax break simply because their state chooses to tax more heavily. Same income, different federal tax burdens, owing purely to actions taken by state governments. That’s a textbook violation of horizontal equity.
Worse still, the deduction permits, if not encourages, states to overspend and overtax. State taxing authorities can rest easy on assurances that some of the taxpayer pain will be offset by what amounts to a federal subsidy. Think of it as state fiscal outsourcing—instead of confronting the full weight of the economic realities of a given tax, and the political ramifications that may attach, state lawmakers can wrap themselves in federal money. That’s not good governance—it’s budgetary buck-passing.
Attempts have been made to rein this in. The Tax Cuts and Jobs Act of 2017 capped the SALT deduction at $10,000, which rankled many blue state politicians who expected their constituents to be most affected. The reality is this was not an assault on the middle class. According to IRS data, over 96% of the benefit from repealing the cap would flow to the top 20% of earners. We aren’t looking at teachers in New Jersey or landscapers in Illinois—it’s more like doctors and lawyers in fearing a lost line item on Schedule A.
Defending a SALT Deduction
We don’t allow deductions for other basic expenses: not your rent, your groceries, or your gas bill, which are at least arguably more essential to living than your state tax obligation. If you have to pay for it and it doesn’t help you generate your income, the tax code generally says “tough luck” when it comes to deductions—so why carve out a special exception for this one category?
Defenders will argue it’s a check on “double taxation”—but that is little more than rhetorical slight of hand. State taxes and federal taxes fund different governments and, for the most part, an entirely different slate of services. Paying both isn’t double taxation, it’s just taxation to two separate sovereigns. You don’t get to deduct your local water or sewer bill just because the federal government also charges an income tax—that’s not how any of this works.
The SALT deduction erodes progressivity in the federal tax code by disproportionately benefiting those who need it least. If you imagine a scenario where there is no cap whatsoever, an individual that pays $100,000 in property taxes will get to shield $100,000 in income from the federal government, while someone that rents will have no such luck. How is that equitable? It makes federal tax burdens more arbitrary, if anything, and let’s high-tax states evade accountability to their residents for their own policy choices.
A SALT Fix
So, what’s the fix then? A low cap is a start–$10,000 might even be a tad generous. Better yet, scrap the deduction entirely and treat SALT the same way we treat most other personal expenses: as the taxpayer’s responsibility. That would promote fairness, encourage more honest state budgeting, and restore some integrity to a federal tax code that is already riddled with exceptions and carveouts to give a leg up to those already enjoying a leg up.
Simplification, progressivity, accountability—if policymakers are serious about any of these things, individually or collectively, there’s no defensible reason to keep the SALT deduction around.
Unless, of course, the real priority is protecting high-income constituents—an uncapped SALT deduction checks that box nicely.
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