The New York Times has quickly learned one of the most controversial features of the GOP tax plan that is poised to pass Congress mainly hurts affluent Democrats living in coastal states where state and local taxes are high. According to NYT’s analysis, over 14,000 income tax returns are filed from Philadelphia claiming a SALT deduction.
SALT, or the State and Local tax deduction allows people who itemize their expenses on their Federal tax return to claim state and local taxes against their earned income. For states who impose little to no income tax on its subjects this isn’t much of a deduction worth worrying about. But for high earners living in coastal states where local taxes are high where SALT is main reason why they itemize, it means a lot.
States where local wage and income taxes are higher have mostly relied upon the fact that the SALT deduction softened the blow of local income taxes, as the Federal burden is partially reduced by them. One could argue that richer states that impose income taxes are in effect diverting income that would have otherwise gone to the federal government.