{
  "id": "RL32781",
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      "date": "2017-05-10",
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      "title": "Federal Deductibility of State and Local Taxes",
      "summary": "Under current law, taxpayers who itemize can deduct state and local real estate taxes, personal property taxes, and income taxes from federal income when calculating taxable income. A deduction for sales taxes in lieu of income taxes is also available. The federal deduction for state and local taxes results in the federal government paying part of these state and local taxes through lower federal tax collections. Theory would suggest that taxpayers are willing to accept higher state and local tax rates and greater state and local public spending because of lower federal income taxes arising from these deductions. In addition, there is some evidence that state and local governments rely more on these deductible taxes than on nondeductible taxes and fees for services.\nRepealing the deductibility of state and local taxes would affect state and local government fiscal decisions, albeit indirectly. Generally, state and local public spending would decline, although the magnitude of the decline is uncertain. And, repealing the deduction for state and local taxes would shift the federal tax burden away from taxpayers in low-tax states to taxpayers in high-tax states. Maintaining the current deductibility would continue the indirect federal subsidy for state and local spending.\nExpanding deductibility, such as reinstating the sales tax deduction option or allowing non-itemizers to deduct taxes paid, would likely increase the subsidy for state and local spending. The sales tax deduction option would primarily benefit taxpayers in states without an income tax that are already itemizing. The effect of allowing non-itemizers to deduct taxes paid would depend on the type of deductible tax. For example, property taxes are only paid (directly) by property owners whereas all consumers pay sales taxes in states that levy a sales tax. The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended the sales tax deduction option through the 2014 tax year, but it has since been allowed to expire.\nRecent tax reform proposals have included changes to state and local tax deductibility. The \u201cA Better Way\u201d tax reform proposal published by the House Budget Committee in June 2016 included a repeal of the deductions for state and local taxes. In April 2017, Treasury Secretary Steven Mnuchin and National Economic Director Gary Cohn also indicated an interest in repealing state and local tax deductions as part of a larger tax reform proposal.\nThe Obama Administration\u2019s FY2016 budget proposed a limit on the tax rate (generally a 28% marginal tax rate) at which itemized deductions would reduce tax liability, but did not specifically address deductions related to state and local taxes. In the 114th Congress, the Consolidated Appropriations Act, 2016 (P.L. 114-113) permanently extended the deduction of state and local sales taxes in lieu of state and local income taxes. In the 111th Congress, the American Recovery and Reinvestment Act provided for an above-the-line deduction for sales and excise taxes paid on new vehicle purchases for non-itemizers, which has since expired.\nThis report will be updated as legislative events warrant.",
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      "id": 445463,
      "date": "2015-09-18",
      "retrieved": "2016-04-06T18:21:44.155228",
      "title": "Federal Deductibility of State and Local Taxes",
      "summary": "Under current law, taxpayers who itemize can deduct state and local real estate taxes, personal property taxes, and income taxes from federal income when calculating taxable income. In addition, a temporary deduction for sales taxes in lieu of income taxes was available, through December 31, 2014. The federal deduction for state and local taxes results in the federal government paying part of these state and local taxes through lower federal tax collections. Theory would suggest that taxpayers are willing to accept higher state and local tax rates and greater state and local public spending because of lower federal income taxes arising from these deductions. In addition, there is some evidence that state and local governments rely more on these deductible taxes than on nondeductible taxes and fees for services.\nRepealing the deductibility of state and local taxes would affect state and local government fiscal decisions, albeit indirectly. Generally, state and local public spending would decline, although the magnitude of the decline is uncertain. And, repealing the deduction for state and local taxes would shift the federal tax burden away from taxpayers in low-tax states to taxpayers in high-tax states. Maintaining the current deductibility would continue the indirect federal subsidy for state and local spending.\nExpanding deductibility, such as reinstating the sales tax deduction option or allowing non-itemizers to deduct taxes paid, would likely increase the subsidy for state and local spending. The sales tax deduction option would primarily benefit taxpayers in states without an income tax that are already itemizing. The effect of allowing non-itemizers to deduct taxes paid would depend on the type of deductible tax. For example, property taxes are only paid (directly) by property owners whereas all consumers pay sales taxes in states that levy a sales tax. The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended the sales tax deduction option through the 2014 tax year, but it has since been allowed to expire.\nIn the 111th Congress, the American Recovery and Reinvestment Act (P.L. 111-5) provided for an above-the-line deduction for sales and excise taxes paid on new vehicle purchases for non-itemizers, which has since expired.\nThe President\u2019s FY2016 budget proposed a limit on the tax rate (generally a 28% marginal tax rate) at which itemized deductions would reduce tax liability, but did not specifically address deductions related to state and local taxes. In the 114th Congress, a bill (H.R. 622) to permanently extend the deduction of state and local sales taxes in lieu of state and local income taxes was passed by the House. However, as of September 10, 2015, no companion bill has been introduced in the Senate. The Senate has introduced the Tax Relief Extension Act of 2015 (S. 1946), which would extend the deduction of state and local sales taxes in lieu of state and local income taxes for two years through 2016. \nThis report will be updated as legislative events warrant.",
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    {
      "source": "University of North Texas Libraries Government Documents Department",
      "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc818474/",
      "id": "RL32781_2015Apr20",
      "date": "2015-04-20",
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      "source": "University of North Texas Libraries Government Documents Department",
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      "id": "RL32781_2015Apr10",
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      "id": "RL32781_2014Nov10",
      "date": "2014-11-10",
      "retrieved": "2015-01-27T19:40:46",
      "title": "Federal Deductibility of State and Local Taxes",
      "summary": "This report provides a brief history of deductible state and local taxes, and discusses deduction for real estate property taxes, deductions for income, sales, and use taxes. The report also discusses policy alternatives and current legislation.",
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          "source": "LIV",
          "id": "Taxation",
          "name": "Taxation"
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          "id": "Tax deductions",
          "name": "Tax deductions"
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          "id": "Tax cuts",
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      "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc815796/",
      "id": "RL32781_2008Sep30",
      "date": "2008-09-30",
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      "id": "RL32781_2008Jul31",
      "date": "2008-07-31",
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      "id": "RL32781_2007Nov28",
      "date": "2007-09-28",
      "retrieved": "2016-01-13T14:26:20",
      "title": "Federal Deductibility of State and Local Taxes",
      "summary": "This report provides a brief history of deductible state and local taxes, and discusses deduction for real estate property taxes, deductions for income, sales, and use taxes. The report also discusses policy alternatives and current legislation.",
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          "id": "Tax cuts",
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  "topics": [
    "Appropriations",
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}