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U.S. Congress Considers Ending State and Local Tax Deductions for Federal Taxes

Mitch Albers

By Mitch Albers, MASB Assistant Director of Government Relations

and

Jennifer Smith

Jennifer Smith, MASB Director of Government Relations

DashBoard, Nov. 1, 2017

Recently, President Donald Trump and Congressional Republicans proposed a new tax scheme that includes eliminating the state and local tax deductions on federal income taxes. Many believe that eliminating this deduction will have two significant negative effects. The first is the impact it will have on state and local government funding of public services. The second is the double taxation on taxpayers.

SALT deductions allow taxpayers who itemize deductions on their federal income taxes to deduct state and local property taxes, and either state and local income taxes, or general sales tax from their federal taxable income. This deduction has existed since 1913, when the original Tax Code was enacted, and has been of great benefit to all taxpayers. More than 44 million taxpayers claim this deduction across the country.

Numerous scholars and experts agree that eliminating the SALT deduction would negatively impact state and local government investments in infrastructure, public safety, homeownership and education. The SALT deduction helps state and local governments provide these services because higher income tax filers are more willing to support state and local taxes with the federal deduction in place. Repealing the deduction would likely lead these filers to be reluctant to pass new state and local taxes and millages or buy real property, thus further reducing the pot of money for public services, including public education.

The second issue is one of double taxation. Federal, state and local taxes are mandatory for all taxpayers. Eliminating the SALT-D would effectively increase the marginal tax rate for many taxpayers, which would shrink their disposable income and negatively impact local economies.

NSBA also opposes this proposal and has joined a coalition opposed to eliminating SALT deductions along with the National Association of Counties, U.S. Conference of Mayors, and other state and local government groups called Americans Against Double Taxation. As Congress considers a number of proposals for a federal tax overhaul, NSBA is urging Congress to champion investments in our public school districts and to reject measures, such as tuition tax credits/vouchers and the proposed SALT repeal, that would negatively impact resources for public education.

NSBA issued a call to action last week asking you to contact your U.S. Representative and urge them to vote NO on the Budget Resolution (H. Con. Res. 71) that was passed by the Senate earlier in October and includes this proposal.

The elimination of the SALT deduction would cause great harm to Michigan’s state budget, as well as local budgets throughout our state, and it would likely hit Michigan schools the hardest. Eliminating SALT will likely lead to less state revenue, which will reduce education funding, as well as making it more difficult to pass local funding increases because residents will be more reluctant, and less able, to increase their tax burdens. We would like you to help us fight against this tax proposal and ensure that Michigan residents and students don’t end up on the wrong end of Washington’s tax proposal.

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