As President Biden’s Build Back Better plan moves forward, Congressional leaders are considering an increase to the state and local tax (SALT) deduction. Under current law, individuals can deduct up to $10,000 in state and local taxes from their federal taxable income, and some members of Congress are proposing these limits increase.
According to analysis from the Institute on Taxation and Economic Policy, raising limits on the SALT cap would benefit only 4 percent of Maine households[i], delivering nearly all gains to people with the most wealth. The analysis finds there is no benefit for Mainers with income less than $67,800 (households in the bottom 60 percent) but for households in the top 1 percent, with income over $560,400, most (87 percent) stand to gain.
The state and local tax deduction is available for people who choose to itemize their income tax deduction, which is only 12 percent of Maine filers.[ii] Several types of expenses qualify for itemized deductions, but the most common are mortgage interest, charitable contributions, and state income taxes and local property taxes. Typically, filers only itemize if their total itemized deduction will be larger than the standard deduction: $12,550 for a single person and double that amount for a married filer. Households with high income, which have more to spend on housing costs and charitable donations and typically pay more in state income taxes, are the most likely to itemize their deductions.
As Congress moves closer to passing the Build Back Better Act, members must not forget that investments in households with low and middle income are what give this package historic power to boost the economy, return to full employment, and help families struggling to get by. Tax policies in the bill that benefit households with high income and corporations are likely only to have meaningful economic effects to the degree they limit the ability of Build Back Better to build a better future for workers, families, and communities. While compromise may be necessary to achieve a final agreement, the Maine Center for Economic Policy encourages Congress to limit any increase to the SALT cap.
Notes
[i] This analysis from ITEP is of repeal of the SALT cap, rather than the adjustment to the cap that is being debated. However, while the tax cut amount would be different, the same households would benefit from any increase in the SALT deduction as do under the cap repeal ITEP analyzes.
[ii] IRS SOI Income Tax Data, Tax year 2018
