States sue over SALT: Here’s what you need to know

Nancy Marshall-Genzer Jul 17, 2018
HTML EMBED:
COPY
U.S. Senate Majority Leader Mitch McConnell (R-KY) speaks on tax reform as Speaker of the House Paul Ryan (R-WI), Sen. Orrin Hatch (R-UT) and other congressional Republicans listen during a press event in 2017 at the Capitol. Alex Wong/Getty Images

States sue over SALT: Here’s what you need to know

Nancy Marshall-Genzer Jul 17, 2018
U.S. Senate Majority Leader Mitch McConnell (R-KY) speaks on tax reform as Speaker of the House Paul Ryan (R-WI), Sen. Orrin Hatch (R-UT) and other congressional Republicans listen during a press event in 2017 at the Capitol. Alex Wong/Getty Images
HTML EMBED:
COPY

New York, Connecticut, Maryland and New Jersey are suing the federal government. They say caps on federal deductions of state and local taxes are unconstitutional. Here’s what you need to know:

What is SALT? It’s an acronym for state and local taxes. That is, income, sales and property taxes. You used to be able to deduct the full cost of these taxes from your federal income taxes. Under the tax overhaul, the SALT deduction is capped at $10,000. 

How long has SALT been around? The state and local tax deduction has been a part of the U.S. tax code for more than 100 years. The idea behind it appears in “The Federalist Papers.” Alexander Hamilton worried the federal government might try to monopolize taxation to the “exclusion and destruction of state governments.”

How much money do the states in the lawsuit say they could lose? New York Attorney General Barbara Underwood said New Yorkers’ federal income taxes would increase by $14.3 billion in 2018 because of the cap on SALT deductions.

What are the main arguments the states are making with this case? The states say the SALT deductions cap goes beyond the limits of federal power to impose income taxes and would hurt taxpayers and the states’ economies. 

What does all of this mean for you? A lot, if you live in a high-tax state. Those states will now face pressure to lower taxes. That could hurt states’ bottom lines, just as they’re dealing with increasing pension liabilities and infrastructure in need of expensive repairs.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.