Walden: The Debate over Deducting State and Local Taxes

Mary:  I’m Mary Walden, with economist MW, welcoming you to the economic perspective.   Today’s program looks at the debate over deducting state and local taxes.   Mike, some of the tax plans being considered by the U.S. Congress would eliminate the ability of taxpayers to deduct state and local taxes they paid from their federal taxes.  What does this mean, and what are the elements of the debate?

Mike:  Summary Answer

1. in NC the taxes are state and local income and sales taxes and property taxes
2. deduction saves taxes paid, but must multiply by tax rate; $10,000 x 0.25 =

$2500 saved in taxes

1. but only take this and other deductions if more than the standard deduction
2. in NC, between 20% and 30% of taxpayers itemize
3. the proposals would do away with the state and local tax deduction as well as

many other deductions

1. proposal would double the standard deduction – making state and local tax

deductions less valuable even if kept

1. proposal would also lower tax rate
2. critics say losing the SALT deductions would increase the cost of state and

local governments

1. advocates say proposal simplifies the tax code
2. I’m MW

Mary:  And I’m Mary Walden for N C State Extension