February 2018, Dean Baker

The new tax law sharply limits the deduction for state and local taxes (SALT) when calculating federal taxes by capping the deduction at $10,000. While this will not affect most taxpayers, it will affect a substantial number of taxpayers in relatively high tax states like California and New York. This paper suggests an employer-side payroll tax as a tool that states can use to shield most of the tax revenue that otherwise would have been collected through formerly deductible income or sales taxes.

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