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All About SALT, the Tax Deduction That Divides the U.S.

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For as long as Americans have paid federal income taxes, they’ve been able to subtract some of what they pay to their state and local governments. This federal deduction for state and local taxes -- the SALT deduction, for short -- has a big influence on how the tax burden is divided. It tends to help taxpayers in wealthier, more urbanized states, where sales taxes are higher and real estate costs more. President Donald Trump’s 2017 tax reform capped the SALT deduction at $10,000. Restoring it in full is a key priority for Democratic lawmakers who represent districts in high-tax states.

Mainly those with relatively high incomes -- the 10% to 15% of filers who itemize their federal tax returns rather than take a standard deduction. Were the $10,000 cap to be lifted, more than half of the benefits would flow to households making $1 million or more annually, according to the nonpartisan Joint Committee on Taxation. The Tax Foundation, in 2018, listed New York, New Jersey, Connecticut, California and Maryland as the states where the SALT deduction matters most. All are traditionally “blue” states, meaning they vote Democratic. At the bottom of the list were North Dakota, South Dakota and Wyoming, three Republican “red” states.