The House of Representatives passed a bill last week that would make permanent the individual provisions of the Tax Cuts and Jobs Act (TCJA)The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by .47 trillion over 10 years before accounting for economic growth. . One such provision is the $10,000 cap on the state and local tax (SALT) deductionThe state and local tax (SALT) deduction permits taxpayers who itemize when filing federal taxes to deduct certain taxes paid to state and local governments. The Tax Cuts and Jobs Act (TCJA) capped it at ,000 per year, consisting of property taxes plus state income or sales taxes, but not both. . This map shows the variation, by county, in the amount of that deduction taken by 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. payers. As you can see, the benefits of the SALT deduction vary widely by county: the average deduction across the ten counties with the highest SALT deduction is $15,736, compared to an average of $1,727 for the country overall.
The measurement used here is mean deduction amount taken per return—in other words, the total value of all the deductions for state and local taxes, divided by the number of returns filed.
This map is interactive—hover the mouse over a given county to see its average amount of state and local deduction claimed.
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Two factors drive this regional variation. The first is taxpayer income. High-income taxpayers are more likely to itemize, while low-income taxpayers are more likely to take the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. . In 2016, 93.1 percent of taxpayers with adjusted gross incomes (AGIs) of $500,000 or more itemized, compared to only 19.1 percent of taxpayers with AGIs between $25,000 and $49,999. This variation causes the SALT deduction to be most valuable in high-income counties. The number of itemizers is projected to decline in 2018 as a result of the TCJA, but the SALT deduction will continue to benefit those wealthier taxpayers who itemize.
The second factor driving the regional variation in SALT deductions is variation in state and local tax burdens across the country. The greatest beneficiaries of the SALT deduction generally have high state and local taxes. The ten counties benefiting most from the deduction are located in just four states, all with high-tax burdens: New Jersey, California, New York, and Connecticut.
| County, State | SALT Deduction Per Filer |
|---|---|
| Source: Internal Revenue Service, “Statistics of Income Tax Stats – County Data – 2016, ‘2016 (all States, does not include AGI),’” https://www.irs.gov/statistics/soi-tax-stats-county-data-2016, author’s calculations. | |
| New York County, NY | $ 25,627 |
| Marin County, CA | $ 19,334 |
| San Mateo County, CA | $ 16,779 |
| Westchester County, NY | $ 15,678 |
| Santa Clara County, CA | $ 14,969 |
| Fairfield County, CT | $ 14,575 |
| San Francisco County, CA | $ 13,925 |
| Nassau County, NY | $ 12,414 |
| Morris County, NJ | $ 12,286 |
| Somerset County, NJ | $ 11,773 |
As it happens, these four states come in dead last in the Tax Foundation’s 2019 State Business Tax Climate Index, released last week.
Prior to the TCJA, the value of the SALT deduction was effectively unlimited, but the new cap limits the deduction to $10,000 per household. If Congress does not make permanent the individual tax provisions, the SALT cap will expire as scheduled after 2025.
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