Who Benefits from the State and Local Tax Deduction?

January 25, 2021

As President Joe Biden and policymakers in Congress consider changes in tax policy over the coming year, the fate of the $10,000 state and local tax (SALT) deduction cap will be an ongoing part of the policy debate. Senate Majority Leader Chuck Schumer (D-NY) has expressed interest in repealing the SALT cap, which was originally imposed as part of the Tax Cuts and Jobs Act (TCJA) in late 2017.

It is important to understand who benefits from the SALT deduction as it currently exists, and who would benefit from the deduction if the cap were repealed. The Internal Revenue Service (IRS) has provided data on state and local taxes paid and deducted for tax year 2018, the first year the SALT cap went into effect.

The value of the SALT deduction as a percentage of adjusted gross income (AGI) tends to increase with a taxpayer’s income. Since the SALT cap was put into place, however, very high earners have seen a sharp reduction in the deduction as a percent of AGI, from 7.7 percent in 2016 for those earning over $500,000 to 0.71 percent in 2018. The value dropped so significantly because the deduction remains at a maximum value of $10,000 even if AGI and state and local taxes rise beyond that amount.

Some higher-income earners still disproportionately benefit from the SALT deduction, however: those earning between $100,000 and $499,999 had average SALT deductions of 1.75 percent of AGI, compared to 0.56 percent for those earning under $25,000.

Value by Income of the SALT Deduction as a Percentage of AGI, 2018
Adjusted Gross Income (AGI) State and Local Tax Deduction Value as Percent of AGI Percentage of Filer Itemizing
$0 to $24,999 0.56% 1.8%
$25,000 to $49,999 0.65% 4.8%
$50,000 to $99,999 1.29% 13.7%
$100,000 to $499,999 1.75% 32.1%
$500,000+ 0.71% 70.0%

Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2018: Historic Table 2, ‘Total File, All States,’” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations.

Higher earners tend to itemize more often, rather than taking the standard deduction. More taxpayers took the standard deduction in 2018 than did in 2016 due to the TCJA’s doubling of the standard deduction. For example, in 2016, 80.2 percent of those earning between $100,000 and $499,999 itemized. In 2018, only 32.1 percent of those filers itemized. The expansion of the standard deduction further limited the value of the SALT deduction for taxpayers under the $10,000 cap.

The SALT deduction tends to benefit states with many higher-earners and higher state taxes. This was true prior to the SALT deduction cap and remained the case in 2018. Seven states—California, New York, Texas, New Jersey, Maryland, Illinois, and Florida—claimed more than half of the value of all SALT deductions nationwide in 2018. California alone was responsible for 19.8 percent of all SALT deductions in the U.S., close to its 2016 share of 20.7 percent.

Value by State of the SALT Deduction as a Percentage of AGI, 2018
  State Deduction as Percent of AGI State Share AGI Per Filer Percent of Itemizers
Top States (and D.C.) Maryland 2.50% 4.20%  $82,105 24.03%
District of Columbia 1.84% 0.46%  $105,458 22.27%
Virginia 1.80% 4.00%  $81,989 17.71%
California 1.80% 19.86%  $89,234 17.69%
New Jersey 1.79% 4.96%  $91,132 16.97%
Oregon 1.71% 1.64%  $71,707 14.57%
Hawaii 1.61% 0.51%  $67,444 13.93%
Utah 1.60% 1.07%  $72,167 14.80%
Georgia 1.55% 3.28%  $67,925 13.84%
New York 1.53% 9.06%  $89,384 12.43%
Bottom States Ohio 0.82% 2.00%  $64,256 6.70%
Florida 0.81% 4.16%  $73,565 9.02%
Nevada 0.81% 0.59%  $73,539 9.89%
Indiana 0.75% 1.00%  $62,150 6.10%
Tennessee 0.60% 0.81%  $64,782 6.69%
Alaska 0.59% 0.10%  $72,150 7.66%
West Virginia 0.59% 0.17%  $55,040 4.32%
South Dakota 0.48% 0.09%  $67,743 5.26%
North Dakota 0.44% 0.08%  $73,050 5.56%
Wyoming 0.44% 0.07%  $80,208 6.45%

Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2018: Historic Table 2, ‘Total File, All States,’” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations.

Overall, the SALT deduction’s value as a portion of AGI fell between 2016 and 2018. In California, the deduction’s value fell from 8.1 percent in 2016 to just 1.8 percent in 2018. The state with the largest amount of SALT deductions as a portion of AGI in 2016 was New York at 9.4 percent. In 2018, Maryland was the top state at 2.5 percent of AGI. The decline from 2016 to 2018 was driven by the SALT deduction cap and, to a lesser extent, the drop in itemization due to the doubling of the standard deduction.

States with fewer SALT deductions also experienced a decline—the average deduction as a portion of AGI for the bottom 10 states fell from 2.33 percent of AGI in 2016 to 0.63 percent in 2018.

SALT Deduction Shares and Values by State, 2018
State Deduction as Percent of AGI State Share AGI Per Filer Percent of Itemizers
Alabama 0.87% 0.74% $60,336 8.55%
Alaska 0.59% 0.10% $72,150 7.66%
Arizona 1.08% 1.54% $67,798 10.95%
Arkansas 0.82% 0.42% $61,340 6.93%
California 1.80% 19.86% $89,234 17.69%
Colorado 1.23% 1.91% $82,401 13.50%
Connecticut 1.46% 1.77% $100,599 15.15%
Delaware 1.23% 0.28% $70,371 11.73%
District Of Columbia 1.84% 0.46% $105,458 22.27%
Florida 0.81% 4.16% $73,565 9.02%
Georgia 1.55% 3.28% $67,925 13.84%
Hawaii 1.61% 0.51% $67,444 13.93%
Idaho 1.03% 0.35% $63,480 8.95%
Illinois 1.29% 4.28% $79,989 11.26%
Indiana 0.75% 1.00% $62,150 6.10%
Iowa 0.86% 0.57% $66,613 7.53%
Kansas 0.96% 0.60% $68,863 8.12%
Kentucky 0.86% 0.67% $59,776 6.58%
Louisiana 0.82% 0.67% $60,821 7.76%
Maine 0.98% 0.27% $61,601 7.36%
Maryland 2.50% 4.20% $82,105 24.03%
Massachusetts 1.38% 3.25% $99,066 14.72%
Michigan 0.95% 2.06% $66,504 7.63%
Minnesota 1.24% 1.84% $77,816 11.25%
Mississippi 0.92% 0.39% $51,426 7.67%
Missouri 0.93% 1.15% $65,096 7.75%
Montana 1.05% 0.23% $62,452 8.91%
Nebraska 0.88% 0.36% $67,117 7.63%
Nevada 0.81% 0.59% $73,539 9.89%
New Hampshire 1.00% 0.39% $81,177 9.91%
New Jersey 1.79% 4.96% $91,132 16.97%
New Mexico 0.88% 0.31% $56,147 7.28%
New York 1.53% 9.06% $89,384 12.43%
North Carolina 1.18% 2.46% $66,292 10.29%
North Dakota 0.44% 0.08% $73,050 5.56%
Ohio 0.82% 2.00% $64,256 6.70%
Oklahoma 0.88% 0.61% $62,598 8.13%
Oregon 1.71% 1.64% $71,707 14.57%
Pennsylvania 1.02% 3.12% $72,045 8.87%
Rhode Island 1.32% 0.34% $69,431 10.59%
South Carolina 1.13% 1.09% $62,220 9.49%
South Dakota 0.48% 0.09% $67,743 5.26%
Tennessee 0.60% 0.81% $64,782 6.69%
Texas 0.95% 6.01% $73,288 9.20%
United States 1.26% 100.00% $75,778 11.47%
Utah 1.60% 1.07% $72,167 14.80%
Vermont 0.92% 0.13% $64,695 7.15%
Virginia 1.80% 4.00% $81,989 17.71%
Washington 1.15% 2.54% $89,906 13.43%
West Virginia 0.59% 0.17% $55,040 4.32%
Wisconsin 0.95% 1.27% $68,428 7.77%
Wyoming 0.44% 0.07% $80,208 6.45%

Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2018: 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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A 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/local taxes paid, mortgage interest, and charitable contributions.

The 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.

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 $1.47 trillion over 10 years before accounting for economic growth.

Adjusted gross income (AGI) is a taxpayer’s total income minus certain “above-the-line” deductions. It is a broad measure that includes income from wages, salaries, interest, dividends, retirement income, Social Security benefits, capital gains, business, and other sources, and subtracts specific deductions.