Revisiting the State and Local Tax Deduction

Many federal tax reform proposals would eliminate the state and local tax (SALT) deduction. Although deficit reduction often is the rationale, there are arguments for eliminating the deduction based on economic efficiency, equity, and improved federal fiscal policy. Eliminating the deduction, however, could affect the mix of revenue sources used by state and local governments and could lead to reductions in spending for programs and services. In this report we consider arguments for and against maintaining the deduction, explore who claims it by state and income level, and estimate the revenue and distributional effects of options for changing the deduction.