Matthew S. Johnson (Cravath, New York) & Gladriel Shobe (BYU), Geographic Inequality and the SALT Deduction, 2026 U. Ill. L. Rev. 107:
The state and local tax (“SALT”) deduction remains one of the most hotly contested issues in federal tax policy. Much of the SALT debate has been driven by politics rather than empirical analysis, leaving key questions about the deduction’s true impact unresolved. This Article moves beyond partisan narratives to provide a clearer picture of who truly gains from the SALT deduction and who bears the cost of its limitation. While the SALT deduction is often characterized as a subsidy for blue states, the reality of where the benefits flow is more complex than the straightforward red state versus blue state distinction. Nearly half of the deduction value comes from local taxes, yet the local-level portion of the SALT deduction has received little attention. In the local portion of the SALT deduction, however, lie unique inequality dynamics that should be considered as part of any debate about the future of the deduction.
This Article uses a novel dataset to provide the first empirical analysis of the local portion of the SALT deduction across several states.
The analysis systematically quantifies the extent to which localities benefit from the SALT deduction. Our findings reveal that the primary beneficiaries of the local portion of the SALT deduction are localities with high home values, low poverty rates, and relatively homogeneous, affluent populations—raising critical questions about the deduction’s role in rewarding economic segregation. As Congress, states, and localities grapple with the place the SALT deduction should play in our nation’s tax regime, this Article provides a necessary, data-driven perspective to inform the debate. By moving beyond political rhetoric and offering a fact-based analysis, this study equips policymakers with the tools needed to craft sensible laws grounded in empirical evidence and sound tax policy.
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