Part of the debate over Republican tax plans in Congress has been a limit to the state and local tax, or SALT, deduction. The SALT deduction allows taxpayers to offset the burden of state and local taxes by deducting them on their federal return.
It’s been a sticking point in New York. Seven of the state’s nine Republican members of Congress want to keep the deduction. Governor Cuomo and other state Democratic leaders do, too.
The deduction has existed in some form for more than a century. It protects against “double taxation." That’s when a single source of revenue is taxed twice, like your income being taxed at both the state and federal level.
Under the deduction, people can claim real estate taxes and personal property taxes, like a car or a boat. Plus, either income or sales taxes on their deduction.
SALT only applies to people who itemize their deductions, not people who claim the standard deduction.
“Most people claim a standard deduction," said Frank Sammartino, a Senior Fellow at the Tax Policy Center. "Only about 30 percent of taxpayers itemize their deductions and virtually all taxpayers who itemize claim the deduction to state and local taxes.”
Sammartino said the deduction tends to benefit people who are wealthy because the more money someone earns, the more likely he or she is to itemize their deductions.
But, he adds that in high-tax states like New York, more middle class taxpayers are likely to benefit from SALT. “So for example in New York, people making between $75,000 and $100,000 of income, about two-thirds of them, 66%, claim the state and local deduction.” Sammartino explained.
For higher income groups in New York, it’s close to 98 or 99 percent who claim the deduction.
The amount the federal government brings in from the SALT deduction is significant. Under current estimates, the federal government lost about $96 billion in revenue this year thanks to SALT.