Easy on the SALT: A Qualified Defense of the Deduction for State and Local Taxes

25 Pages Posted: 30 Oct 2017 Last revised: 13 Dec 2017

See all articles by Daniel J. Hemel

Daniel J. Hemel

University of Chicago - Law School

Date Written: October 28, 2017


Congressional Republicans and Trump administration officials have said that they plan to repeal the deduction for nonbusiness state and local taxes (SALT) as part of a comprehensive tax reform package. This essay critically examines the major arguments for repealing the SALT deduction. Repealing the deduction and using the resulting revenues to reduce federal rates across the board would likely lead to greater tax-induced deadweight loss overall. Repealing the deduction also would distort decisions about the financing of education and health care, which together account for more than half of all state and local government spending. Repeal would further encourage a shift from nonbusiness to business taxes at the state and local level, and potentially would result in more borrowing by subnational governments in the short and medium term. It would have ambiguous effects on the progressivity of the overall tax system, and it would exacerbate existing differences in federal tax burdens across states. The essay concludes that the case against the SALT deduction fails on its own terms, and that the status quo of partial deductibility offers a number of underappreciated advantages vis-à-vis the alternative of full repeal.

Keywords: State and Local Taxes, State and Local Tax Deduction, Tax Reform

JEL Classification: K34

Suggested Citation

Hemel, Daniel J., Easy on the SALT: A Qualified Defense of the Deduction for State and Local Taxes (October 28, 2017). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 826, U of Chicago, Public Law Working Paper No. 652, Available at SSRN: https://ssrn.com/abstract=3061096 or http://dx.doi.org/10.2139/ssrn.3061096

Daniel J. Hemel (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics