By Matt Jensen and Donald J. Boyd

In this second half of our two-part post reviewing the impact of raising the SALT cap to $80,000 in 2021, we focus on the state-by-state impacts. For an introduction and review of the national impacts, see part I.

State-by-state impacts of raising the
SALT cap to $80,000

Taxpayers in
California would receive $12.5 billion of the $55.9 billion national tax
reduction, or 22.3 percent. They would be followed by New York ($6.9 billion),
New Jersey ($3.7 billion), and Illinois ($2.7 billion). (Figure 1.) Taxpayers
in these four states, combined, would receive 46 percent of the national tax
reduction.

Average tax
reductions for returns with positive liabilities range from $1,338 in
Connecticut to $61 in Alaska. The largest reductions would be in the higher-tax
states: In addition to Connecticut, taxpayers in California, Massachusetts, New
Jersey, and New York would receive tax cuts averaging more than $1,000 per
return. (Figure 2.)

How raising the SALT cap
compares to repealing it entirely

Relative to full cap repeal, raising the cap on the SALT deduction would spread the tax revenue reduction slightly more broadly across the states (reviewed here) as well as reduce the revenue loss and make it less concentrated among the highest-income households (see part I).

Table 1 shows how
the distribution of the tax cut differs between full cap repeal and an $80,000
cap, for the 10 states with the largest reduction under the $80,000 cap and for
other states as a group. California and New York both have substantially
smaller shares of the tax cut under the $80,000 cap than under repeal. Other
states in the top 10, and remaining states as a group, all would have larger
shares of the tax cut under the $80,000 SALT cap than full cap repeal. The
SALT-cap proposal provides a $35.3 billion smaller tax cut than does full cap
repeal, and the top 10 states would account for $27 billion of the reduction in
tax benefits.

Conclusions

Whether
Congress will alter the SALT cap remains to be seen. Taxpayers in high tax
states including California and several states in the Northeast were most
affected by the cap, particularly those in upper-income ranges, and they would
benefit most from full cap repeal. If Congress raises the cap to $80,000, as
currently is being discussed, high-income taxpayers in high-tax states would
benefit the most, but relatively less than they would benefit from full cap
repeal.

Matt Jensen is the director of the Open Source Policy Center at the American Enterprise Institute. Donald J. Boyd is the co-director of the State and Local Government Finance Project at the Rockefeller College of Public Affairs & Policy at the University at Albany and principal of Boyd Research, LLC.

The post How raising the SALT cap would affect taxpayers in different states, part II appeared first on American Enterprise Institute – AEI.