The Death and Life of the State and Local Tax Deduction

46 Pages Posted: 19 Oct 2018

See all articles by Daniel J. Hemel

Daniel J. Hemel

University of Chicago - Law School

Date Written: September 27, 2018


The new $10,000 cap on the deduction for state and local taxes (SALT) has proven to be one of the most controversial aspects of the December 2017 federal tax law. Four states have sued the Trump administration alleging that the cap is unconstitutional. Those four states and several others have moved to establish arrangements that mitigate the deduction’s impact on their residents. The Treasury Department and the Internal Revenue Service have published proposed regulations that seek to stop those states in their tracks. Battles over the deduction and the state workarounds will likely move to the courts in the coming months.

Viewed from one angle, the December 2017 tax law strikes the most serious blow to the SALT deduction in the century-and-a-half since the provision first emerged. Yet the new $10,000 cap also has the potential to give the SALT deduction new life. One state, New York, has responded to the $10,000 cap by adopting a payroll tax arrangement that could extend the SALT deduction to workers who never claimed it before. And the intensely partisan attack on the SALT deduction from the right has managed to transform the provision into a cause célèbre among progressive activists and politicians, making it all the more likely that the deduction will be revived if Democrats retake control of Congress and the White House.

This article considers the state and local tax deduction's history and its future. It casts the new $10,000 cap on the state and local tax deduction as the culmination of a seven-decade trend of successive SALT limitations, which even before 2017 had put the deduction effectively out of reach for more than two-thirds of the taxpaying public. It then evaluates the normative arguments against the deduction and in favor. The article goes on to examine the strategies that states are pursuing to ensure that their residents can pay for public goods and services with federally deductible dollars. Some of these strategies stand a strong chance of succeeding; others will likely flounder. What the ongoing SALT battles most certainly have done is to mobilize a constituency in support of a provision that, just a few years ago, looked like it had few friends. Ironically, the attack on the SALT deduction as part of the partisan December 2017 tax law might well have saved the provision from the dustbin of tax history.

Keywords: state and local tax deduction, SALT

JEL Classification: K34

Suggested Citation

Hemel, Daniel J., The Death and Life of the State and Local Tax Deduction (September 27, 2018). 72 Tax Law Review 151 (2018-2019), University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 860, U of Chicago, Public Law Working Paper No. 686, Available at SSRN:

Daniel J. Hemel (Contact Author)

University of Chicago - Law School ( email )

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

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