The House of Representatives passed a bill last week that would make permanent the individual provisions of the 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. Cuts and Jobs Act (TCJA). One such provision is the $10,000 cap on the state and local tax (SALT) deduction. The benefits of the SALT deduction overwhelmingly go to high-income taxpayers, particularly those in high-income and high-tax states. In 2016, 77 percent of the benefit of the SALT deduction accrued to those with incomes above $100,000; only 6.6 percent went to taxpayers with incomes below $50,000.
The value of the SALT deduction as a percentage of adjusted gross income (AGI) increases with a taxpayer’s income. In 2016, taxpayers with AGIs between $0 and $24,999 claimed, in aggregate, SALT deductions worth only 2.3 percent of AGI, whereas taxpayers with incomes of $500,000 or higher claimed deductions worth 7.7 percent of AGI. AGI is used to calculate taxable income; wealthier taxpayers, then, enjoy a SALT deduction worth a greater percentage of their taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. .
| AGI | State and Local Deduction Value as Percent of AGI | Percentage of Filers Itemizing |
|---|---|---|
|
Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2016: Historic Table 2, ‘Total File, All States,’” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations. |
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| $0 – $24,999 | 2.3% | 5.9% |
| $25,000 – $49,999 | 2.0% | 19.1% |
| $50,000 – $99,999 | 3.8% | 44.3% |
| $100,000 – $499,999 | 6.7% | 80.2% |
| $500,000+ | 7.7% | 93.1% |
Income is also positively correlated with the percentage of filers who itemize deductions instead of taking the standard deduction. Only 5.9 percent of taxpayers with AGIs between $0 and $24,999 itemized in 2016, compared to 93.1 percent of taxpayers with incomes of $500,000 or more. The number of itemizers is projected to decrease in 2018 as a result of the TCJA, however, as discussed below.
The SALT deduction also generally benefits states that have relatively large numbers of high-income taxpayers and high-tax environments. In New York, the deduction was worth 9.4 percent of AGI, while the average across all states and the District of Columbia was 4.6 percent. Just six states–California, New York, New Jersey, Illinois, Texas, and Pennsylvania–claimed more than half (51.6 percent) of the value of all SALT deductions nationwide. California alone was responsible for 20.7 percent of all SALT deductions. In summary, the benefits are highly concentrated in wealthy regions and toward upper-income taxpayers.
|
Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2016: Historic Table 2, ‘Total File, All States,'” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations/. |
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| State | Deduction as Percent of AGI | State Share | AGI Per Filer | Percent of Itemizers | |
|---|---|---|---|---|---|
|
Top States |
New York | 9.40% | 13.10% | $80,260 | 34.90% |
| New Jersey | 8.80% | 5.90% | $84,472 | 41.80% | |
| Connecticut | 8.50% | 2.50% | $92,782 | 41.60% | |
| California | 8.10% | 20.70% | $79,332 | 35.20% | |
| Maryland | 7.90% | 3.20% | $76,069 | 46.40% | |
| Oregon | 7.20% | 1.60% | $65,038 | 37.00% | |
| District of Columbia | 7.10% | 0.40% | $93,023 | 40.20% | |
| Massachusetts | 6.40% | 3.50% | $88,393 | 37.40% | |
| Minnesota | 6.30% | 2.20% | $71,467 | 35.40% | |
| Rhode Island | 6.10% | 0.40% | $64,162 | 33.20% | |
|
Bottom States |
Mississippi | 2.90% | 0.30% | $48,362 | 24.10% |
| Texas | 2.80% | 4.00% | $64,335 | 24.20% | |
| Louisiana | 2.80% | 0.60% | $56,886 | 24.60% | |
| Alabama | 2.70% | 0.60% | $55,598 | 26.40% | |
| Florida | 2.60% | 2.80% | $61,988 | 23.90% | |
| Nevada | 2.20% | 0.40% | $64,588 | 26.00% | |
| Tennessee | 1.90% | 0.60% | $58,457 | 20.30% | |
| South Dakota | 1.80% | 0.10% | $61,450 | 17.90% | |
| Wyoming | 1.80% | 0.10% | $69,484 | 22.20% | |
| North Dakota | 1.80% | 0.10% | $66,250 | 19.10% | |
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SubscribeThe impact of the SALT deduction will change somewhat, however, as a result of the TCJA. The Joint Committee on Taxation estimates that the number of taxpayers who itemize instead of taking 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 (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. will fall from 46.5 million in 2017 to just over 18 million in 2018. Behind the decrease in itemizers and increase in taxpayers taking the standard deduction is the TCJA’s near-doubling of the standard deduction, which limits the value of itemized deductions, such as SALT. The SALT deduction, however, will continue to be important for those who itemize—which is to say, for wealthier taxpayers.If Congress does not make permanent the individual tax provisions, the SALT cap will expire as scheduled after 2025. With or without the cap, however, wealthy taxpayers will continue to be the greatest beneficiaries of the SALT deduction.
| State | AGI Per Filer | Percent of Itemizers | Dehuction as percent of AGI | State Share |
|---|---|---|---|---|
|
Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2016: Historic Table 2, ‘Total File, All States,’” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations/. Includes District of Columbia. |
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| Alabama | $55,598 | 26.40% | 2.70% | 0.60% |
| Alaska | $67,590 | 23.00% | 1.60% | 0.10% |
| Arizona | $60,362 | 29.40% | 3.50% | 1.10% |
| Arkansas | $55,608 | 22.70% | 3.50% | 0.40% |
| California | $79,332 | 35.20% | 8.10% | 20.70% |
| Colorado | $73,396 | 33.40% | 4.00% | 1.40% |
| Connecticut | $92,782 | 41.60% | 8.50% | 2.50% |
| Delaware | $64,391 | 32.70% | 4.70% | 0.20% |
| District of Columbia | $93,023 | 40.20% | 7.10% | 0.40% |
| Florida | $61,988 | 23.90% | 2.60% | 2.80% |
| Georgia | $60,798 | 33.40% | 4.80% | 2.40% |
| Hawaii | $62,491 | 30.00% | 4.70% | 0.40% |
| Idaho | $56,357 | 28.90% | 4.70% | 0.40% |
| Illinois | $71,626 | 31.60% | 5.30% | 4.20% |
| Indiana | $57,155 | 23.10% | 3.50% | 1.10% |
| Iowa | $60,974 | 30.20% | 4.80% | 0.80% |
| Kansas | $62,237 | 25.90% | 3.80% | 0.60% |
| Kentucky | $54,460 | 26.50% | 4.70% | 0.90% |
| Louisiana | $56,886 | 24.60% | 2.80% | 0.60% |
| Maine | $56,949 | 27.50% | 5.30% | 0.40% |
| Maryland | $76,069 | 46.40% | 7.90% | 3.20% |
| Massachusetts | $88,393 | 37.40% | 6.40% | 3.50% |
| Michigan | $60,732 | 27.10% | 4.30% | 2.20% |
| Minnesota | $71,467 | 35.40% | 6.30% | 2.20% |
| Mississippi | $48,362 | 24.10% | 2.90% | 0.30% |
| Missouri | $59,346 | 26.60% | 4.30% | 1.30% |
| Montana | $55,890 | 29.10% | 4.70% | 0.20% |
| Nebraska | $61,478 | 28.00% | 4.80% | 0.50% |
| Nevada | $64,588 | 26.00% | 2.20% | 0.40% |
| New Hampshire | $73,876 | 31.80% | 4.10% | 0.40% |
| New Jersey | $84,472 | 41.80% | 8.80% | 5.90% |
| New Mexico | $51,293 | 22.80% | 3.10% | 0.30% |
| New York | $80,260 | 34.90% | 9.40% | 13.10% |
| North Carolina | $60,061 | 29.60% | 4.60% | 2.30% |
| North Dakota | $66,250 | 19.10% | 1.80% | 0.10% |
| Ohio | $58,421 | 26.30% | 4.50% | 2.70% |
| Oklahoma | $57,109 | 23.80% | 3.20% | 0.50% |
| Oregon | $65,038 | 37.00% | 7.20% | 1.60% |
| Pennsylvania | $65,408 | 29.10% | 5.00% | 3.70% |
| Rhode Island | $64,162 | 33.20% | 6.10% | 0.40% |
| South Carolina | $56,473 | 28.00% | 4.20% | 0.90% |
| South Dakota | $61,450 | 17.90% | 1.80% | 0.10% |
| Tennessee | $58,457 | 20.30% | 1.90% | 0.60% |
| Texas | $64,335 | 24.20% | 2.80% | 4.00% |
| Utah | $64,948 | 36.10% | 4.60% | 0.70% |
| Vermont | $59,260 | 27.80% | 5.80% | 0.20% |
| Virginia | $74,693 | 37.80% | 5.50% | 2.90% |
| Washington | $79,332 | 30.80% | 2.90% | 1.50% |
| West Virginia | $50,050 | 17.30% | 3.10% | 0.20% |
| Wisconsin | $62,594 | 31.60% | 5.80% | 1.90% |
| Wyoming | $69,484 | 22.20% | 1.80% | 0.10% |