Tax Policy

The State and Local Tax Deduction, or SALT, recently came under scrutiny amidst the debate over tax reform. Implemented in 1913, SALT allows taxpayers to deduct money paid towards state and local taxes from their taxable federal income. The deduction costs the federal government about $96 billion each year, but state and local governments argue that it is crucial for local development.

CSG Midwest
Tax policy quickly emerged as a high-priority issue this year in many of the Midwest’s states, with a mix of proposed tax hikes and cuts making their way into governors’ State of the State addresses and proposed budgets, as well as some of the first bills introduced in legislatures.

Stateline Midwest ~ April 2013

Plans in 2013 include expanding sales tax base, raising severance tax, cutting income taxes and adding tax brackets

Sen. Beau McCoy calls it a once-in-a-generation opportunity for himself and other Nebraska policymakers: the chance to pore over the state’s entire tax structure, and reform and modernize it.

But as he has already found after introducing an overhaul this year, there are reasons why major shifts in tax policy sometimes occur only once every few decades.

“The more we, or at least I, spend on this, the more you realize how difficult it is for states to make big changes to their tax structures,” he says. “There are so many moving parts.”

The recent report by the Institute on Taxation and Economic Policy (ITEP) assessed the fairness of state and local tax systems among 50 states. The report identified ten states as having the most regressive overall tax systems. The ITEP identifies these states as “Terrible Ten” states, where the bottom 20 percent pay up to six times as much of their income in taxes as their wealthy counterparts. Washington State is the most regressive, followed by Florida, South Dakota, Illinois, Texas, Tennessee, Arizona, Pennsylvania, Indiana, and Alabama. That is largely contributed to heavy reliance on sales taxes, which burdens the bottom 20 percent more than the top 1 percent.