Question

This week's discussion will focus on a specific provision included in the Tax Cuts and Jobs Act of 2017.

Up to now, taxpayers' ability to deduct local and state income, sales and property taxes (SALT) was unlimited...meaning they could deduct those expenses from their aggregate federal income, thus limiting their accompanying federal tax burden. Under the new law, those deductions are limited to $10,000 (total). That limitation is applicable to each and every taxpayer nationwide, but will disproportionately impact folks living in high-tax states who had previously benefited from itemizing these deductions.

Is this new SALT tax provision equitable (fair)? Stake your position...and then defend it per the inclusion of a minimum of two (2) credible properly-cited and referenced outside sources.

Answer 1

The ability to deduct state and local taxes (SALT) has historically been a valuable tax break for taxpayers who itemize deductions on their federal income tax returns. Unfortunately, the Tax Cuts and Jobs Act (TCJA) limits SALT deductions for 2018 through 2025. Here’s important information that homeowners should know about the new limitation.

The Joint Committee on Taxation estimates that the number of taxpayers who itemize instead of taking the standard deduction 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.

The SALT deduction has found itself on the chopping block numerous times over the past several decades. Champions of fundamental tax reform have long argued that the provision is regressive, expensive, and unfair. But time and again, supporters of the SALT deduction have managed to deflect those arguments, relying on their own claims to tax fairness and fiscal federalism.

Everyone in the United States benefited from SALT, but the SALT deduction was used directly by around 30% of all taxpayers. Taxpayers were given the option of deducting real estate taxes as well as either income taxes or sales taxes paid to state and local governments. While the SALT deduction was used across all income levels, the actual amount of property versus income versus sales tax deducted by lower, middle, and upper income taxpayers provides insight into how those taxpayers benefit. For example, while over 70% of SALT deductions for tax units with an AGI of more than $200,000 were from income taxes, over 60% of deductions from taxpayers with less than $50,000 in income came from property tax. This highlights how important the property tax deduction is for middle class homeownership.

In addition to its effect on taxpayers who itemize, regardless of adjusted gross income, the SALT deduction also benefited taxpayers in all 50 states. The tax deduction was used by Americans living in urban, suburban, and rural locations and across all congressional districts. The states with the highest percentage of taxpayers using the SALT deduction were in the East and Northeast regions. However, states in the West and Midwest also take advantage of the deduction. Overall, use of the SALT deduction was widespread among all states. The average deduction per tax unit in Connecticut, New York, and New Jersey were all over $7,000, and close to $6,000 in California.

TWO SOURCES USED HERE ARE GFOA AND MWCPA .

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