Local Leaders Take a Stand for the State and Local Tax Deduction
The deduction plays a critical role in helping cities provide vital services such as healthcare, infrastructure improvement and public safety services to their citizens.
This post was co-authored by Brett Bolton and Will Downie.
City and county leaders took to Capitol Hill this week to discuss a critical but often overlooked part of the federal tax code: the state and local tax deduction (SALT). The deduction plays a critical role in helping cities provide vital services such as healthcare, infrastructure improvement and public safety services to their citizens.
Yet the Trump Administration has suggested removing the deduction as a means of offsetting other tax cuts — a move that could have negative repercussions for millions of Americans and the cities they call home.
Created in 1913 as part of the original income tax, the SALT deduction grants taxpayers the ability to deduct taxes paid to local and state governments from their obligation to the federal government. This simple deduction frees up local governments to levy local taxes and raise the revenues they need, without the fear of double-taxing their residents.
On Tuesday, local officials from Illinois, Virginia and Ohio spoke at a Big Seven Congressional briefing to discuss the importance of the SALT deduction in their communities. The panel discussion, moderated by Government Finance Officers Association (GFOA) CEO and Executive Director Chris Morrill, examined the importance of the SALT deduction in local budgeting processes and dispelled the myth that the deduction is singularly used by wealthy Americans.
According to a newly released GFOA and National League of Cities report, “The Impact of Eliminating the State and Local Tax Deduction,” repeal of the SALT deduction would adversely affect almost 30 percent of taxpayers, including individuals in every state and in all income brackets. This is not only a deduction for the upper brackets — in fact, more than 50 percent of SALT deductions went to taxpayers with incomes under $200,000.
“This is a big deduction for a reason — we do a big job,” said Mayor Bob Coiner of Gordonsville, Virginia, who also works as a public accountant and represented NLC during the briefing, “Federal money is dwarfed in local communities by what local governments do. We all have our parts to play, and Washington is viewing this too simplistically."
“This can affect your deductions for mortgages, healthcare and other issues. They say that everyone will be getting a deduction, but without this, not many people will be able to reach that cap for a standard deduction,” said Mayor Coiner.
Cutting such a foundational component of the federal tax code would change the way local governments budget, tax, and allocate funds. Taxpayers would demand immediate action to lower state and local taxes, resulting in shortfalls in already-strained budgets. That would only make the job of providing vital services to citizens even more difficult for local governments.
Local leaders are addressing some of the most pressing challenges of our time, and this week’s briefing demonstrated how local tax authority and flexibility are paramount to their continued success. The stories and perspectives shared this week highlighted the importance of local control and the need for a greater open dialogue between federal policymakers and the local elected officials working in city halls across the country.
About the authors:
Brett Bolton is the principal associate for Federal Advocacy (Finance, Administration and Intergovernmental Affairs) at NLC.
Will Downie is an intern with the National League of Cities’ Federal Advocacy team.