Groups representing state and local governments are stepping up their efforts to preserve the deduction for state and local taxes (SALT), arguing in a report released Tuesday that the preference does not just benefit the wealthy and residents of high-tax states.
“If SALT were repealed, almost 30% of taxpayers, including individuals in every state and in all income brackets, would be adversely impacted,” the groups wrote in their report.
Under current law, taxpayers who itemize their deductions can deduct their state and local property taxes,as well as either their income taxes or sales taxes.
But the tax-reform plan that House Republicans released last year and the plan that the White House released in April both would repeal the state and local tax deduction. Congressional Republicans and administration officials have said they want to overhaul the federal tax code this year.
Advocates for eliminating the deduction argue that the preference disproportionately benefits higher earners and subsidizes states. Many of the states that benefit the most from the deduction lean Democratic.
But the state and local government groups wrote that “contrary to popular opinion, the deduction of state and local taxes does not exclusively benefit the wealthy, even though that argument has been used countless times in attempts to modify or repeal the deduction.”
The groups said that more than half of the total amount of the SALT deduction goes to people with incomes of less than $200,000 per year.
They also said in the report that while residents of states with the highest percentage of taxpayers claiming the deduction tend to be in the Northeast, there are taxpayers in all congressional districts that deduct their state and local taxes.
“Overall, use of the SALT deduction is widespread among all states regardless of geographic area, political identification, wealth, or economic activity,” the groups wrote.
The state and local government groups argued that the deduction removes cases where income is taxed twice and also makes home ownership cheaper.
“If the SALT deduction were eliminated, it would represent a significant tax increase on homeowners and make it much more difficult for many Americans to own their homes,” the groups wrote.
Officials from state and local governments briefed congressional staff about the report at an event on Capitol Hill on Tuesday.
A bipartisan group of lawmakers from high-tax states has already been pressing the White House to keep the SALT deduction.
Treasury Secretary Steven Mnuchin told ABC News on Sunday that the White House is aware of the concerns from residents of high-tax states.
“I think we've heard a lot of feedback from New York, California, New Jersey, Connecticut, Illinois, and I think we want to be sensitive to those states and those economies as we shape the plan,” he said.
The groups that issued the report are: The Government Finance Officers Association, the National Governors Association, the U.S. Conference of Mayors, the Council of State Governments, the National Conference of State Legislatures, the National League of Cities, the National Association of Counties, the International City/County Management Association and the National Association of State Budget Officers.