On the Disparate Treatment of Business and Personal SALT Payments

Abstract

The Tax Cuts and Jobs Act, H.R. 1, would eliminate the federal income tax deduction for nonbusiness state and local taxes while maintaining the deduction for business state and local taxes. That disparate treatment has generated a storm of negative commentary. In this short essay, I consider whether the federal tax law should allow a deduction for business state and local taxes assuming that there is no deduction for nonbusiness state and local taxes. I argue that investors and businesses, including pass-through businesses, should be allowed to deduct state and local property and sales taxes, but not general income taxes.

Keywords: Tax Law and Policy, Law and Economics, SALT Deduction, Real & Personal Property Taxes, Wage & General Income Taxes, Public Benefits

JEL Classification: H21, H24, H25, K34