Residents in Manhattan and the San Francisco Bay area pay the highest state and local taxes in the country -- a key statistic in the ongoing congressional debate about whether to expand a tax break for local levies paid.
Manhattan residents averaged $18,543 in state and local taxes, or SALT, in 2018, according to analysis Wednesday from the right-leaning think tank, the Tax Foundation. Taxpayers in San Francisco Bay-area counties Marin and San Mateo paid on average $15,851 and $13,747, respectively, according to the report, which is based on Internal Revenue Service data from 2018.
The focus on state and local tax bills has intensified since a 2017 change in the tax code limited the SALT deduction to $10,000, which meant that some people in high-tax areas weren’t able to claim as big of a tax break on their federal returns as they had in past years.
Democrats in Congress are now debating expanding the SALT deduction. A $3.5 trillion budget resolution that has been adopted in both the House and Senate calls on the two chambers to include an expansion of the SALT write-off as part of President Joe Biden’s economic agenda later this fall.
The value of the SALT deduction, which allows taxpayers to exclude as much as $10,000 of the state and local tax bills from their federal taxable income, varies widely across the country. In the 10 counties with the highest SALT deduction, the average value was $2,600, compared to $404 in the U.S. overall, according to the Tax Foundation analysis.
Still, only a small fraction of taxpayers can claim the tax break because it is only available to those who itemize their tax returns. About 11.4% of taxpayers itemized in 2018, and about 70% of those households had incomes of $500,000 or more, according to the analysis.
Expanding the SALT deduction has faced criticisms from Republicans, who say Democrats are creating a back-door tax cut for the rich. It’s also drawn criticism from some progressive Democrats. New York Representative Alexandria Ocasio-Cortez has said she could support a small increase to the SALT deduction, but says a broader expansion would be a “giveaway to billionaires.”
House Ways and Means Chairman Richard Neal, who leads the chamber’s tax-writing committee, said he plans to start considering the tax legislation, which will include changes to SALT, as soon as Sept. 9.
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