Tuesday, October 8, 2019
Manoj Viswanathan (UC-Hastings), Hyperlocal Responses to the SALT Deduction Limitation, 71 Stan. L. Rev. Online 294 (2019):
The Tax Cuts and Jobs Act, enacted in December 2017, places a $10,000 limit on the federal deduction for payments of state and local taxes (“SALT”). Several states with high numbers of adversely affected taxpayers have proposed or enacted legislative workarounds to this new cap. Much has been said about these state-level responses, but there has been little analysis of local-level effects or of how local governments could similarly respond. This essay addresses that gap by (1) statistically modeling the number of taxpayers affected by the SALT deduction limitation at a ZIP-code-by-ZIP-code (rather than state-by-state) level, and (2) proposing locality-based strategies relevant to taxpayers throughout the U.S., and not just those living in highly affected states.
A hyperlocal analysis provides several key insights. First, although blue states are generally more affected by the SALT deduction limitation, many solidly red states contain high concentrations of affected taxpayers. Focusing on statewide effects masks the extent to which large numbers of affected taxpayers exist in seemingly unaffected areas. Second, although recent SALT workarounds have focused on state income taxes, there is ample opportunity for mitigating the effects of the SALT deduction limitation by focusing instead on property taxes. This would allow cities or counties, rather than states, to implement SALT workarounds tailored to their residents. This is especially relevant for taxpayers in states without a personal income tax. Third, SALT workarounds focusing on property taxes recoup more lost SALT deductions (on a percentage basis) for middle class taxpayers than for the wealthy, possibly giving these workarounds some bipartisan appeal.