Panel Paper:
Estimating the Impact of the Cap on Salt Deductions: A Cross-City Analysis of Illinois
*Names in bold indicate Presenter
Given the substantial variation in the number of affected taxpayers and the amounts of SALT deductions, the impact of this cap is likely to vary across states and localities. Using the Internal Revenue Service’s Statistics of Income data, we intend to estimate the impact of the cap of SALT deductions on individual taxpayers across municipalities in the state of Illinois. We also explore the correlation between the estimated impact of the cap and municipal tax burdens to identify what municipalities are affected the most. The preliminary results indicate that taxpayers residing in municipalities with higher levels of local property tax bear large negative impacts of the cap.
This study improves understanding of the tax bill’s impact on subnational government finances. Some scholars expect that the cap on SALT deductions will reduce support for state income and local property taxes, and state and local governments will face pressure to lower taxes or forgo tax increases, even in periods of economic recession (Chernick 2018, Reschovsky 2018). Our findings suggest that the pressure to lower relevant state and local taxes is stronger in cities that rely heavily on property tax revenues.