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State Payroll Taxes: A Tool for States to Circumvent the Republican Tax Plan

by Dean Baker

Feb 13, 2018

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.