Nearly 11 million Americans nationwide would have been capped from deducting more than $323 billion in state and local taxes in 2017 because of changes enacted in the GOP's tax reform legislation, according to an audit released Tuesday by the Treasury Inspector General for Tax Administration — and expect similar results for the 2018 tax year.
The 28-page report offers a new window into the full scope of the $10,000 cap on SALT deductions, which is supported by the White House and top congressional Republicans but has been heavily criticized by the leaders of many high-tax Democratic states, including New York, and by elected officials on Long Island. The cap went into effect in the 2018 tax year.
The audit, which relies on federal tax returns, estimates that if the SALT limits had been in place in 2017, 10.8 million tax filers would have lost a combined $323 billion in deductions. Auditors estimate similar results in tax year 2018, where more than 10 million taxpayers will be unable to fully deduct their state and local taxes, the report said.
On Long Island, where residents pay among the highest property taxes in the nation, roughly 530,000 homeowners, or 36 percent of all tax filers in Nassau and Suffolk, are affected by the cap, according to data from the Urban-Brookings Tax Policy Center, a nonpartisan think tank in Washington, D.C. The average SALT burden is higher than $10,000 in 52 of 62 New York counties.
Long Island lawmakers, who represent districts with some of the highest percentages of SALT filers, said the IG report is further proof that the tax bill unfairly targeted middle-class suburban communities.
"Tax filers living on Long Island are being taken advantage of," said Rep. Thomas Suozzi (D-Glen Cove). "This bill is bad for the region and bad for Long Island."
More than 250,000 families, or 43 percent of households in Suozzi's 3rd Congressional District, which covers most of Long Island's North Shore and parts of Queens, claim the state and local tax deduction at an average rate of $18,300, staffers said.
Rep. Peter King (R-Seaford), who has co-sponsored legislation with Suozzi to retroactively restore the SALT deductions, said the IG report is "more evidence that the tax bill was discriminatory against suburban taxpayers, particularly on Long Island."
More than 207,000 households, or nearly 48 percent of residents in King's 2nd District, which straddles Nassau and Suffolk counties, claim a SALT deduction of just over $20,000, officials said.
Suozzi and King said New Yorkers are already getting shortchanged by the federal government.
New York State got back 90 cents in federal spending for every dollar it sent to Washington in federal fiscal year 2017, one of the biggest imbalances in payments between the states and the federal government, according to an October 2018 report by State Comptroller Thomas DiNapoli.
The IG report was issued at the request of the then-House Ways and Means Committee chairman, Kevin Brady (R-Texas), after the Treasury Department issued a proposed rule in August, rejecting efforts by states, including New York and New Jersey, to circumvent the SALT cap by allowing taxpayers to convert state and local tax payments into charitable deductions.
But Tuesday's audit was heavily redacted in sections that appear to discuss the process and reasons utilized by Treasury to reject the charitable deduction workaround. A representative of the Treasury Inspector General for Tax Administration said the redactions were requested by the IRS and the Treasury Department because the report cites information in the pre-decision-making process.