History of State and Local Tax Deductibility The deductibility of state and local taxes is older than the current federal income tax itself. The provision has its origin in the nation’s first effort at income taxation (eventually found unconstitutional) under the Civil War-financing Revenue Act of 1862, and was carried over into the Revenue Act of 1913, the post-Sixteenth Amendment legislation creating the modern individual income tax. The rationale for the original provision only comes down to us in fragments, though a fear that high levels of federal taxation might “absorb all [the states’] taxable resources,” a concern first addressed in the Federalist Papers, appears to have held sway.[10] Lawmakers sought a bulwark against the possibility that “all the resources of taxation might by degrees become the subjects of federal monopoly, to the entire exclusion and destruction of state governments,”[11] and found it in a federal deduction for state and local taxes.
And as Matt LaBash further points out:
But sure, red staters, gloat in the fact that, say, Alaska, South Dakota, and Wyoming represent only 0.1 percent apiece of a state share of SALT deductions. As opposed to say, coastal blue states like California, New York, or New Jersey (19.6 percent, 13.3 percent, and 5.9 percent, respectively.) Good on you. Except that you also, if you’re being honest, have to calculate that state taxes present a complex multi-faceted picture. (When it comes to federal revenue, all of the sudden, conservative congresspersons are no longer pro-states’ rights.) For instance, seven states pay no state income tax at all, five of seven of which went red in the last presidential election. And when Wallethub, a personal finance site, calculated which states were most dependent on federal funds, a contrarian picture emerges. The top five federally dependent states were Kentucky, Mississippi, New Mexico, Alabama, and West Virginia. Four out of five of which went for Trump. The five least dependent states? All SALT-deduction lovers who pay more than their fair share of federal taxes: California, Illinois, New Jersey, Minnesota, and Delaware. Five of five of which went blue in the last election.
Hate to break the news to you, Trump-loving Alabamans, but even the SALT-deducting hedge-fund manager in Greenwich isn’t the welfare queen that you are. Connecticut = the 42nd most-dependent state on federal finances. Alabama = the fourth most-dependent state. When calculating federal tax revenue by state, six out of the top ten payers are blue states. So despite Republicans’ haste to punish coastal blue states, who suffer higher costs of living/state taxes, and therefore benefit disproportionately from taking SALT deductions, exactly who is subsidizing who is a very open question.
High tax states are actually the ones subsidizing low tax states via revenue sent to Washington. Period.
Eliminating this deduction is simply a big FU to NY, NJ, IL, CA and other states. The GOP are working for their donors, not us. They need to screw over the middle class to "pay for" the generous and massive tax cut they are about to give Google, Facebook, Apple, Amazon, and every other corporation.
Oh, and here's the best part: that "evil" property, local, and state deduction that is being eliminated for individuals?
Well, both the Senate and House bills will allow corporations to continue to claim these deductions!
Nice, huh?