Monday, March 19, 2018
Daniel Hemel (Chicago) presents The Death and Life of the State and Local Tax Deduction at BYU today as part of its Tax Policy Colloquium Series hosted by Cliff Fleming and Gladriel Shobe:
The December 2017 U.S. tax law imposed stringent limits on the deduction for state and local taxes (SALT). But the new law does not necessarily spell SALT’s demise. Several states are poised to enact statutes that could restore the SALT deduction for some of their residents and extend it to others who never claimed the deduction before. Ironically, the effort to kill the SALT deduction as part of the December 2017 tax law may have the unintended consequence of spurring states to enact reforms that effectively expand the deduction’s scope.
This essay takes stock of SALT’s history and offers a tentative forecast as to its future. It casts the recent rollback of SALT as the culmination of a seven-decade trend of successive SALT limitations, which even before 2017 had put the SALT deduction effectively out of reach for more than two-thirds of the taxpaying public.
It goes on to outline the strategies that states and their subdivisions can pursue to preserve—and in some cases expand—the ability of their citizens to pay for state and local government-provided goods and services with federally deductible dollars. The essay concludes with reflections on what these state strategies tell us about the normative justification for the SALT deduction in the first instance. The fact that the SALT deduction can be so readily reengineered is—I argue—a powerful indication that the deduction is in fact consistent with deeply rooted elements of the Internal Revenue Code.