The SALT Deduction Has Always Been Hard to Defend — And to Kill



The SALT provision of the 1862 tax disappeared with the income tax itself in 1872. It returned, on paper if not in practice, when the income tax was briefly revived in 1894 (before being struck down by the Supreme Court in the 1895 Pollock decision). But when the income tax returned for good in 1913, it brought the SALT deduction back for the long haul.

Over the decades, the deduction evolved to reflect its fiscal environment. When states began to rely on sales taxes, the deductibility of those levies in the federal system was made explicit. The introduction of the standard deduction in 1944 also reshaped the SALT deduction, reducing its scope dramatically (and shifting the distribution of its benefits up the income scale). Later revisions in the 1960s and 1970s modestly curbed the deduction, but it remained largely intact through the 1980s.

Its survival, however, did not reflect any sort of elite consensus that the deduction was a good idea. Indeed, policy experts were increasingly hostile to it. In earlier decades, the deduction had escaped careful scrutiny, perhaps because it was widely perceived to be necessary in a system marked by high marginal rates; many experts believed that absent the deduction, the combination of federal and state income taxes might have approached confiscatory levels.

Publication Date: 27 October 2017

Publication Site: Tax History Project