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States Scramble As GOP Tax Bills Threaten SALT Deductions

And the majority of those states are led by Democrats.
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States Scramble As GOP Tax Bills Threaten SALT Deductions

Republicans are currently celebrating the passage of their tax reform bill in the House, awaiting passage in the Senate and scaring the crap out of states with high taxes by possibly getting rid of state and local tax deductions, or SALT. 

SALT deductions have been around since 1913 and allow taxpayers to deduct the cost of some of the state and local taxes they pay from their federal tax bills. 

The theory is that if you're an itemizer, you can put these deductions down and you won't have to pay taxes on top of what you've already paid. This is most likely to happen in places with high state and local taxes, which are usually more Democratic-leaning areas. 

In these high-taxed places like New Jersey, New York or California, the government really depends on that revenue. And if SALT deductions are taken out of the equation, those states might have to reduce taxes or make large cuts to education and social programs.

One New Jersey lawmaker put it this way: "We're going to have to re-evaluate everything. ... What's happening in Washington is concerning the hell out of me."

New York Gov. Andrew Cuomo thinks this could force wealthy folks to flee New York for lower taxed states, saying "even if your federal taxes were to go down ... your state tax and property tax will have to go up, because it will hurt the state."

The Republican answer to that? Too bad. The Office of Management and Budget Director Mick Mulvaney said, "I don't think it's up to the federal government to save New York from its bad decisions."

Republicans say they want to cut taxes for as many people as possible. The easiest way to pay for that plan is to get rid of the most expensive federal deductions, and SALT is pretty high on that list.

The Tax Policy Center estimates SALT will have a revenue cost of $96 billion in 2017, and from now until 2026 will account for $1.3 trillion. That's a whole lot of money that could go a long way in making tax reform easier — and less costly — for the federal government.