NC Budget and Tax Center, Trump Administration

As Congress rushes to pass tax legislation, consider the impact to NC’s state and local taxes

Congress is very close to giving a tax bill to President Trump by the holidays that would allow the wealthiest to pay less in taxes and result in a bad deal for everyone else.

As Congress rushes to make all of this happen, it is important to know that the tax framework released by President Trump and Republican leaders contains proposals that will not only put the federal budget on a path to higher deficits, but will also worsen the state’s fiscal health.

Here’s how: President Trump and congressional Republican leaders plan to end the federal deduction for state and local taxes (SALT). As researchers at the Center on Budget & Policy Priorities argue, the SALT deduction supports state and local budgets because it makes higher income filers, in particular, more willing to support increases in their state and local taxes because they can deduct it from their federal income tax return. Eliminating it would make it harder for North Carolinians to maintain funding for schools, roads, public safety, homeownership and other building blocks of thriving communities, at a time when the federal government would shift more of these investments to state and local governments to fund on their own. That is because the repeal of the SALT deduction is being done to pay for rate reductions that benefit the country’s wealthiest taxpayers.

In 2015, 1.2 million North Carolinians claimed SALT and the average value of the deduction was more than $9,500.

Concerns about ending SALT have been expressed by state and local government groups since the president and Congressional leaders presented their tax framework. For example, the National Association of Counties released a statement expressing major concerns:

“Counties are opposed to this $1.3 trillion federal money grab. Eliminating the SALT deduction would force undue burden upon the backs of middle-class homeowners in every state. Even if the standard deduction were doubled, middle-class homeowners would see their federal tax bills increase by an average of $815.”

Tax changes should not put at risk our state’s fiscal health and our nation’s. Instead, we should be pursuing the design of a tax code that can responsibly support the services that our communities need to thrive.

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

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