As President Joe Biden and Congress push the next round of big tax hikes and spending bills, Californians will be hearing a great deal about the so-called “SALT” deduction. SALT stands for state and local taxes and, for many years prior to President Trump’s term in office, taxpayers could deduct those taxes from their federal tax returns without limitation.
Then in 2017, Congress passed and the president signed the Tax Cuts and Jobs Act. It limited the amount of state and local taxes that taxpayers could deduct to $10,000. In states with high state income tax rates and/or high property taxes, this meant there were many taxpayers who lost a valuable deduction and felt the full pain of the taxes imposed by their state and local governments.
For Californians, ouch. Because California has the highest income tax rates in America, one of the few saving graces for high-income taxpayers has been the ability to deduct state taxes on one’s federal return.
The fight over the ability to fully deduct state and local taxes has splintered the country. States with modest income tax rates, or no income tax at all, complained that their residents were essentially subsidizing residents of profligate, big-spending states.
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