The state and local tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. , barely saved from elimination in the 1986 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform after fierce lobbying by New York, is slated for partial elimination in the House tax bill and complete elimination in the Senate tax bill. There has been a strong debate about the provision, including pieces by us on how 88 percent of the deduction’s benefit goes to taxpayers with incomes over $100,000, that just six states claim more than half of the deduction’s value, that the deduction subsidizes higher state and local taxes, and that the deduction isn’t necessary to prevent double taxation.
One powerful voice on the topic may be considering a less hardline position. In August, the National Conference of State Legislatures (NCSL) unanimously adopted a resolution setting out the organization’s principles for federal tax reform, including a goal of “preserving the state and local income tax, sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. deductions for federal income tax purposes.” A consequent bipartisan letter from NCSL executives to Congress urged them, among other issues, “to reject any tax reform legislation that modifies or eliminates the SALT deduction…” In September, NCSL signed onto a coalition to save the deduction.
On Saturday, NCSL’s State and Local Tax Task Force voted 12 to 2 to request revisiting of NCSL’s position against SALT repeal. It was moved by North Dakota Sen. Dwight Cook (R) and seconded by Wisconsin Rep. John Macco (R), and the dissenting states were Minnesota and New Mexico. The second thoughts appear to be driven by the lack of acknowledgment that many states are agnostic to SALT repeal as part of a comprehensive tax overhaul. Many yes votes came from states that want to keep SALT but nonetheless respect their colleagues who want to reopen the discussion.
The next step will be action by the NCSL Budget and Revenue Committee in mid-December. I don’t see them acting, as timing is a problem (proposed resolutions had to be submitted last week, so they’d need to strike and amend an existing proposal). But even this vote is a big statement.
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