Center for American Progress

5 Little-Known Facts About Taxes and Inequality in America

5 Little-Known Facts About Taxes and Inequality in America

Rich Americans face the lowest payroll tax rates and benefit from skewed income tax deductions, loopholes, and rate preferences.

In this article
The Capitol undergoes construction in the background, with a white stone blurred in the foreground.
The U.S. Capitol building is seen on a sunny day in Washington, D.C., June 2022. (Getty/Chip Somodevilla)

The Inflation Reduction Act of 2022, recently signed into law by President Joe Biden, builds a fairer tax code by raising taxes on the rich in three ways: 1) it enacts a 15 percent minimum tax on all corporations with more than $1 billion in annual profits; 2) it funds greater IRS enforcement activities against tax cheats with incomes above $400,000; and 3) it imposes a 1 percent tax on stock buybacks made by corporations repurchasing $1 million or more of their shares each year.1 This new revenue will go toward fighting climate change, expanding access to health care, and decreasing the deficit by more than $300 billion.2 By reducing the deficit, the Inflation Reduction Act is expected to withdraw demand from the economy and modestly decrease inflation.3

Although these three changes are steps in the right direction, more progressive tax reform is needed. Unfortunately, the tax policy discourse often fixates on the federal income tax to the exclusion of the broader tax code, which includes multiple taxes on the working class and carve-outs for the rich. In fact, a new report by the U.S. Congressional Joint Committee on Taxation (JCT) highlights five regressive elements of the federal code.4 These include:

  1. Low-income Americans face higher payroll tax rates than rich Americans. Americans with less than five-figure incomes pay an effective payroll tax rate of 14.1 percent, while those making seven-figure incomes or more pay just 1.9 percent.
  2. Long-term capital gains and qualified dividends—both of which are forms of capital income that are taxed at lower, preferential rates—overwhelmingly accrue to the rich. The richest 0.5 percent of taxpayers receive 70.2 percent of all long-term capital gains and 43.3 percent of all dividends. Pass-through business income also overwhelmingly goes to the rich and benefits from an unjustifiable loophole.
  3. The state and local tax (SALT) deduction is extremely regressive. The SALT deduction benefits 75.1 percent of taxpayers making $1 million or more, compared with less than 1 percent of those making less than $30,000. Unsurprisingly, the average millionaire deducts $317 for every $1 deducted by the very lowest-income Americans.
  4. The mortgage interest deduction similarly is skewed toward the rich. The average amount deducted is $13,061 for those with at least a seven-figure income, $2,886 for those with a six-figure income, $274 for those with a five-figure income, and just $33 for those making a four-figure income or less.
  5. Progressive estate and gift taxes play a dwindling role in the tax code. Estate and gift revenues have averaged just 0.1 percent of gross domestic product (GDP) since former President Donald Trump’s Tax Cuts and Jobs Act of 2017, equivalent to just half the average revenue from recent decades and one-third of the average from the decades following the New Deal.

While the very richest Americans pay the highest marginal income tax rates—that is, the highest tax rates on their last dollar of income—this fact needs additional context.5 The very richest Americans pay lower payroll tax rates than ordinary workers, and when the richest Americans pay income taxes, they are often taxed on only a portion of their income. While the overall U.S. tax code is still moderately progressive, the figures below show that substantial elements of the code are regressive, thereby contributing to high and rising inequality.6 These regressive elements will need to be corrected even as the much-needed Inflation Reduction Act is being enacted into law.

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Fact 1: Poor and working-class Americans pay higher payroll tax rates than the rich

In fiscal year 2021, the government raised $1.3 trillion from federal payroll taxes, making them the second-largest source of federal revenue.7

Federal payroll taxes are levied on the income generated from work—the wages of employees and the business income of the self-employed. Workers pay a 15.9 percent tax rate on their first $7,000 of earnings; a 15.3 percent rate on earnings between $7,000 and $147,000; a 2.9 percent rate on earnings between $147,000 and $200,000; and a 3.8 percent rate on earnings above $200,000, or $250,000 for couples.8 Because rich Americans are taxed at lower marginal rates and tend to earn more of their income from sources other than work, they face lower payroll tax rates than poorer Americans. As Figure 1 shows, effective payroll tax rates—that is, payroll taxes as a share of total income—start at 14.1 percent for the lowest-income Americans, remain at or above 9 percent for those making as much as $200,000, and fall to just 1.9 percent for millionaires.

Figure 1

Politicians should keep the burden of payroll taxes in mind before chastising low-income Americans for paying insufficiently high income taxes. For most Americans, including the vast majority of those with low incomes, payroll taxes are a greater burden than federal income taxes. As shown in Figure 2 below, 67.5 percent of taxpayers will owe more in payroll taxes than in income taxes in 2022.9 Clearly, low-wage workers without any income tax liabilities have plenty of skin in the game.

Figure 2

Federal taxes are progressive, but state and local taxes are regressive

According to the Institute on Taxation and Economic Policy, state and local tax rates are highest for the poor and lowest for the rich. Across the income distribution, effective state and local tax rates start at 11.4 percent for the poorest 20 percent of Americans, fall to 9.9 percent for the middle 20 percent, and then decline to 7.4 percent for the top 1 percent.10 Low-income people who pay regressive state sales taxes and local property taxes also clearly have plenty of “skin in the game,” whether they pay federal income taxes or not.

Fact 2: Tax-preferred long-term capital gains and qualified dividends overwhelmingly accrue to the rich

Two types of income—long-term capital gains and qualified dividends, both of which are forms of capital income—are subject to lower federal income tax rates.11 For both forms of income, the lowest marginal rate is 0 percent, the second marginal rate is 15 percent, and the third and highest marginal rate is 20 percent.12 Notably, the third rate is 17 percentage points lower than the top marginal tax rate for other forms of income, allowing rich stockholders to cut their tax bill by nearly half.13

Dividends are the income received from holding stock in a given company. Similarly, long-term capital gains are the income generated by selling an asset above the purchase price after owning it for more than 12 months. For example, if an investor purchases 10 shares of a company for $5 each, and later sells those shares for $7, he receives a $20 capital gain.

Both dividends and long-term capital gains are concentrated disproportionately in the hands of the wealthy. Although just 0.5 percent of taxpayers will earn $1 million or more in 2022, this exclusive club will receive 70.2 percent of all long-term capital gains and 43.3 percent of all dividends.14 By contrast, the 35.1 percent of taxpayers making less than $40,000 receive just 0.4 percent of all long-term capital gains and only 1.2 percent of all dividends.15 (see Figure 3) Therefore, the lower tax rates for these forms of income provide far greater aid to the rich than to the poor, thus increasing after-tax income inequality.

Figure 3

One caveat is that the figure above shows the distribution of all dividends income, not just the qualified dividends that are taxed at lower rates. As shown in Figure 4 below, dividends accruing to working-class Americans are slightly more likely to be taxed at ordinary rates than those accruing to the rich, meaning that the concentration of qualified dividends is somewhat more unequal than depicted in Figure 3.

Figure 4

In addition, one of the most incoherently designed carve-outs in the current tax code is the so-called pass-through loophole—a provision that allows certain owners of privately held businesses to reduce their tax liabilities by one-fifth.16 This loophole also applies to certain publicly traded partnerships, such as master limited partnerships.17 New York University Law Professor Daniel Shaviro has previously written, “The pass-through rules … function as incoherent and unrationalised industrial policy, directing economic activity away from some market sectors and towards others, for no good reason and scarcely even an articulated bad one.”18

Although it is unclear why the pass-through loophole exists, it is clear who it helps. Approximately 69 percent of all pass-through income accrues to just the top 1 percent of income earners.19 This deduction, like those for dividends and long-term capital gains, is highly skewed toward the rich.

Fact 3: The SALT deduction is extremely regressive

When Americans pay their taxes at the end of the year, they choose to either itemize their deductions or claim the standard deduction.

The standard deduction allows taxpayers to reduce their taxable income by a fixed dollar amount. For tax year 2022, married couples can claim a standard deduction of $25,900.20 A couple making $35,900, for instance, will owe taxes on just $10,000 of income; at a 10 percent tax rate, they will end up paying $1,000.21 Without the standard deduction, they would have owed $4,102.50—more than quadruple their payments under the current system.22

If a taxpayer chooses to itemize their deductions, they can claim deductions for certain expenses. For example, taxpayers who itemize can claim deductions for charitable contributions, mortgage interest payments, state and local taxes, and other forms of spending. In tax year 2019, 11 percent of taxpayers itemized their deductions, and 87.6 percent claimed the standard deduction.23 Approximately 1.4 percent claimed neither deduction.24

Who are the taxpayers who claim neither deduction?

Of the taxpayers claiming neither type of deduction, more than 2.1 million had zero or negative income, implying they had no need for a deduction.25 Another 13,000 reported positive incomes, including more than 2,000 taxpayers with incomes above $50,000.26 The latter group was presumably unaware of the complexities of the tax code and thus accidentally overpaid.

Although anyone can itemize their deductions, only high-income Americans typically do so.27 Itemized deductions only make sense if the itemized amount is greater than the standard deduction. Low-income Americans rarely choose to itemize because they rarely spend more than $25,900 on itemizable expenses.28

Although almost all itemized deductions benefit the rich more than the poor, the disparity is especially pronounced with the SALT deduction. The SALT deduction is claimed by 75.1 percent of Americans earning $1 million or more, as well as by 58.6 percent of those earning between $500,000 and $1 million.29 (see Figure 4) By contrast, less than 1 percent of taxpayers earning less than $30,000 are expected to claim the SALT deduction in 2022.30

Figure 5

In addition, rich Americans who claim the SALT deduction usually deduct much larger amounts than poor Americans who claim the SALT deduction. Among the small share of taxpayers earning less than $50,000 who claim the SALT deduction, the average amount deducted is $4,686.31 But among those claiming the SALT deduction and also earning $200,000 or more, the average deduction is $9,735—close to the $10,000 maximum, and more than twice the amount claimed by low-income itemizers.32

When taking into account that rich Americans are more likely to use the SALT deduction and claim it for greater amounts, the overall distribution of SALT looks incredibly regressive.33 Across all taxpayers who earn $1 million or more, including those who do not itemize their deductions, the average SALT deduction is $7,672. (see Figure 5) By contrast, the average amount deducted is a mere $24 for those earning less than $10,000.

Figure 6

The regressivity of the SALT deduction is compounded by yet another factor. Because marginal tax rates rise along the income distribution, deducting $100 is worth more to a high-income taxpayer than to a low-income taxpayer. A $100 SALT deduction for an individual in the 10 percent marginal tax bracket will reduce their taxes by $10, but someone in the 37 percent bracket will reduce their payments by $37. This makes virtually all itemized deductions quite regressive, and the size and narrow concentration of the SALT deduction make its regressivity truly exceptional.

The progressive second-order effects of the SALT deduction must be weighed against its regressive first-order effects

Although the static distributional tables above show that the SALT deduction predominantly benefits the rich, the issue is not entirely clear-cut due to the deduction’s potential second-order effects.

Many progressives who do not generally support tax cuts for the rich make an exception for the SALT deduction on the grounds that it indirectly funds progressive state and local benefits.34 For this argument to hold, two facts must be true: 1) States and localities must respond to the SALT deduction by relying more heavily on federally deductible sources of revenue than on nondeductible sources, and 2) lawmakers must dedicate those newfound revenues to higher spending rather than to offsetting tax cuts.

In 2016, the Urban Institute reviewed the evidence on how the SALT deduction affects state and local taxes and spending.35 The reported findings are somewhat mixed but generally suggest that the first condition holds—that is, state and local policymakers tax federally deductible income at higher rates than nondeductible income.36

The evidence on how those revenues affect spending is less clear, but there is some support for the proposition that the SALT deduction leads to higher spending. Economists Douglas Holtz-Eakin and Harvey Rosen drew on data from 172 municipalities in the late 1970s and 1980 and found that tax deductibility led to significantly higher local spending.37 Economist Gilbert Metcalf, using panel data on state and local revenues from 1979 to 2001, found that federal deductibility leads to higher state and local revenues from deductible sources but did not detect a shift away from nondeductible sources.38 He therefore found that federal deductibility increases state and local own-source revenues.39 However, economists Bradley Heim and Yulianti Abbas found that when the federal government began allowing taxpayers to deduct their sales taxes in lieu of income taxes,40 state governments, but not local governments, raised greater sales tax revenues and less income, property, and corporate tax revenues.41 Overall, Heim and Abbas did not detect any effect on the total amount of taxes collected, which implied there was no impact on spending.42

But even if the SALT deduction has some progressive second-order effects, those effects need to be put in context.43 For the SALT deduction to be progressive on net, it would have to engender more progressive state and local fiscal policies to such an extreme degree as to more than offset the SALT deduction’s highly regressive federal effect. While the SALT deduction may be less regressive than these distributional tables indicate, it seems implausible that it is on net progressive, as some writers have claimed.44

Fact 4: The mortgage interest deduction is also highly regressive

Another highly regressive deduction is the mortgage interest deduction. Under this provision, homeowners can deduct the full value of their mortgage interest payments from their taxable incomes. No similar deductions exist for renters or for homeowners who purchase their homes without taking out debt.45

Like the SALT deduction, the mortgage interest deduction is claimed predominantly by the rich. It benefits 51.4 percent of taxpayers with incomes of $500,000 or more, 19.1 percent of taxpayers making between $100,000 and $500,000, 5.2 percent of taxpayers earning $50,000 to $100,000, and just 0.8 percent of those with incomes below $50,000.46 Furthermore, because richer Americans have larger mortgages, they also claim larger deductions: Among those claiming the mortgage interest deduction, the average deduction is $10,864 for taxpayers earning less than $50,000 and $22,007 among those earning $500,000 or more.47

Adding it all up, the mortgage interest deduction reduces taxable income by thousands of dollars for Americans at the top of the income scale, but by just dozens of dollars for those at the bottom.

Figure 7

For the SALT and mortgage interest deductions, the JCT provides data on the amounts deducted by various taxpayers. It does not provide data on those taxpayers’ total windfalls, which would account for the fact that a flat deduction amount is worth the most to those in the highest marginal tax brackets.

However, the Congressional Budget Office (CBO) has examined how much different income groups benefited from the SALT and mortgage interest deductions in 2019.48 While not as current as the JCT’s findings, which focus on 2022, the CBO’s findings are more complete; the results show the total increase in after-tax income for each quintile along the income distribution. According to the CBO, the SALT and mortgage interest deductions reduced government revenues by $50 billion in 2019, with 81.5 percent of that amount—$40.8 billion—going to just the top one-fifth of households.49 Virtually none of the benefit went to the most disadvantaged Americans. (see Figure 7)

Figure 8

Fact 5: Estate and gift taxes play a marginal and declining role in the U.S. tax code

In contrast to payroll taxes, the mortgage interest deduction, the SALT deduction, the pass-through deduction, and the preferential rates for long-term capital gains and qualified dividends, one highly progressive feature of the tax code is estate and gift taxes. Even at its historical peak, the estate tax was paid by just 7.6 percent of estates, a figure that has likely fallen to around 0.1 percent in recent years.50 According to the Urban-Brookings Tax Policy Center, the majority of the estate tax burden falls on heirs inheriting more than $1 million.51

However, the relative importance of the estate tax has been declining for decades. The JCT shows that from 1972 to 2021, estate and gift tax revenues fell from 0.4 percent of GDP to 0.1 percent.52 Estate and gift tax revenues averaged 0.3 percent of GDP from 1940 to 1971, years not presented in the JCT report; 0.2 percent of GDP from 1972 to 2017; and 0.1 percent of GDP following the Tax Cuts and Jobs Act.53 This progressive revenue source has diminished substantially over the decades and now plays little role in the American economy. (see Figure 8)

Figure 9


It is true that the overall U.S. tax code is progressive—that is, the rich usually pay higher tax rates than the poor or middle class.54 But this is not universally true—and the tax system contains a number of highly regressive elements. Most obviously, working-class people face higher payroll tax rates than the rich, mostly because the rich derive little of their income from work. Much of this nonwork income not only is exempt from payroll taxes, but also receives lower, preferential rates under the income tax. Concurrently, the rich make extensive use of deductions for pass-through income, state and local taxes, and mortgage interest payments. By contrast, the estate tax—which really does fall exclusively on the very wealthy—has declined substantially in recent decades. This has allowed many lucky heirs to receive massive windfalls with little or no accompanying tax bill.

The JCT report shows all this and more. With their own principal tax committee highlighting these facts, members of Congress can no longer feign ignorance about the many regressive elements of the federal tax code. Those elements have now been well documented, and it is time for Congress to start changing them.


  1. See Alan Rappeport, “The I.R.S. says new funding won’t mean more audits for middle-income Americans,” The New York Times, August 4, 2022, available at; Inflation Reduction Act of 2022, Public Law 169, 117th Cong., 2nd sess. (August 16, 2022), available at; Jane G. Gravelle, “An Excise Tax on Stock Repurchases and Tax Advantages of Buybacks over Dividends” (Washington: Congressional Research Service, 2022), available at Corporations are only subject to the 15 percent minimum tax if their average annual profits from the previous three tax years exceed $1 billion. See Inflation Reduction Act, p. 3. The Inflation Reduction Act clarifies that only corporations buying back more than $1 million of stock are subject to the 1 percent stock buybacks tax. See Inflation Reduction Act, p. 36. The tax is levied on net rather than gross repurchases, as the tax base “would be reduced by any new issues to the public or stock issued to employees,” according to the Congressional Research Service. Exemptions are included for repurchases on behalf of “employer-sponsored retirement plan[s], employee stock ownership plan[s], or similar plan[s],” as well as repurchases made by regulated investment companies and real estate investment trusts. See Inflation Reduction Act, p. 36. Obligations incurred under the stock buyback tax will not be classified as deductible expenses under the corporate profits tax. See Inflation Reduction Act, p. 37. This means that a $100 stock buyback tax will increase a corporation’s total tax payments by $100. Were the $100 instead considered a deductible expense, corporations could lower their reported profits by $100, cutting the corporate profits tax payment by $21, given the 21 percent corporate profits tax rate. Therefore, a corporation in this scenario would have increased its net tax payments by only $79 if the stock buyback tax were classified as a deductible expense.

  2. The Congressional Budget Office has reported that the Inflation Reduction Act would reduce the 10-year deficit by $90.5 billion. However, that estimate does not include additional revenues from the act’s enhanced IRS enforcement, which the CBO believes will generate an additional $203.7 billion. Finally, the CBO released its findings before the Senate made a few last-minute changes that are expected to further decrease the deficit by another $15 billion. The total of these three amounts of deficit reduction is $309.2 billion, although final estimates may differ slightly due to the interaction effects of these three provisions. See Congressional Budget Office, “Estimated Budgetary Effects of H.R. 5376, the Inflation Reduction Act of 2022” (Washington: 2022), available at; Jeff Stein, Maxine Joselow, and Rachel Roubein, “How the Inflation Reduction Act might affect you — and change the U.S.,” The Washington Post, July 28, 2022, available at; Peter Wehrwein, “The Healthcare Provisions in the Inflation Reduction Act,” Managed Healthcare Executive, August 8, 2022, available at; Victor Reklaitis, “Stock-buybacks tax in, carried-interest section out – here’s what’s in Senate Democrats’ bill as it heads for passage,” MarketWatch, August 5, 2022, available at
  3. Jason Furman, “The Schumer-Manchin Bill Will Ease Inflation and Climate Change,” The Wall Street Journal, July 28, 2022, available at; CNN, “Economic adviser, who reportedly helped convince Manchin, speaks to CNN,” July 28, 2022, available at; Mike Allen, “First look: Former Treasury secretaries push Manchin bill,” Axios, August 3, 2022, available at

  4. U.S. Congressional Joint Committee on Taxation, “Overview Of The Federal Tax System As In Effect For 2022” (Washington: 2022), available at

  5. Center on Budget and Policy Priorities, “Marginal and Average Tax Rates” (Washington: 2020), available at

  6. For a broader look at the overall tax code, see Steve Wamhoff and Matthew Gardner, “Who Pays Taxes in America in 2020?” (Washington: Institute on Taxation and Economic Policy, 2020), available at; Josh Barro, “Here’s the Chart You Need to Understand Who Pays All the Taxes,” Very Serious, April 1, 2022, available at
  7. Congressional Budget Office, “Budget and Economic Data,” available at (last accessed August 2022).

  8. IRS, “Topic No. 759 Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return – Filing and Deposit Requirements,” available at (last accessed August 2022); U.S. Social Security Administration, “Social Security and Medicare Tax Rates,” available at (last accessed August 2022); U.S. Social Security Administration, “Contribution and Benefit Base,” available at (last accessed August 2022); IRS, “Topic No. 560 Additional Medicare Tax,” available at (last accessed August 2022).

  9. With the exception of Figure 7, the unit of study in this report is the “tax return” or the “tax unit,” referred to as the “taxpayer” throughout this publication. In Figure 2, taxpayers with negative income taxes and zero payroll taxes are classified as having higher payroll tax liabilities. These taxpayers are an incredibly small fraction of the total taxpaying population, as refundable tax credits are generally tied to wages, and wages in turn engender payroll tax obligations. However, there are probably a small number of taxpayers who benefit from the premium tax credit and the American opportunity tax credit despite not owing any payroll taxes. The health coverage tax credit, the only other major refundable tax credit not linked to work, expired at the end of 2021. See Tax Policy Center, “Key Elements of the U.S. Tax System: What is the difference between refundable and nonrefundable credits?”, available at (last accessed August 2022); Pension Benefit Guaranty Corp., “Health Coverage Tax Credit (HCTC),” available at (last accessed August 2022).
  10. Meg Wiehe and others, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States” (Washington: Institute on Taxation and Economic Policy, 2018), p. 13, available at

  11. James Royal, “What is the long-term capital gains tax?”, Bankrate, April 7, 2022, available at

  12. Ibid.

  13. Individual taxpayers with incomes above $200,000, or $250,000 for couples, pay an additional 3.8 percent marginal tax called the net investment income tax (NIIT). This can lift the top marginal rate for long-term capital gains and qualified dividends to 23.8 percent. Notably, the NIIT kicks in at the same threshold and imposes the same marginal rate as all payroll taxes owed by the highest-wage workers. Therefore, if one accounts for the NIIT while also accounting for payroll taxes, the gap in top marginal rates remains 17 percent. Some rich taxpayers dodge both types of tax by classifying their income as “business income” and thus evading both labor-focused payroll taxes and the capital-focused NIIT. See IRS, “Find out if Net Investment Income Tax applies to you,” available at (last accessed August 2022); Jean Ross and Seth Hanlon, “Fact Sheet: How Closing a Tax Loophole That Benefits the Rich Would Strengthen Medicare,” Center for American Progress, July 14, 2022, available at

  14. U.S. Congressional Joint Committee on Taxation, “Overview Of The Federal Tax System As In Effect For 2022.”

  15. Ibid.

  16. Samantha Jacoby, “Repealing Flawed ‘Pass-Through’ Deduction Should Be Part of Recovery Legislation” (Washington: Center on Budget and Policy Priorities, 2021), available at

  17. Jeffrey D. Wallace, “Tracking Tax Reform: The Impact on MLPs of the House and Senate Conference Report on the Tax Cut and Jobs Act,” Locke Lord, December 19, 2017, available at

  18. Daniel Shaviro, “Evaluating the New US Pass-Through Rules,” British Tax Review 1 (2018), available at

  19. Michael Cooper and others, “Business in the United States: Who Owns It, and How Much Tax Do They Pay?”, Tax Policy and the Economy 30 (1) (2016) available at The authors break this down further among different types of pass-through income, noting: “Pass-through income is even more highly concentrated, with the top 1% earning 66.9% of total S-corporation income and 69.0% of total partnership income.” See p. 106.
  20. Congressional Budget Office, “Budget and Economic Data.”
  21. Author’s calculations based on data from Ibid.
  22. Ibid. The statistics in this paragraph refer exclusively to statutory income tax payments. They do not account for other taxes nor for offsetting credits. Without the standard deduction, a couple making $35,900 would be taxed at a 10 percent rate on their first $10,275 of income and a 12 percent rate on the remaining $25,625.

  23. Author’s calculations based on data from the IRS, “SOI Tax Stats – Individual Statistical Tables by Filing Status,” available at (last accessed August 2022).

  24. Ibid.

  25. Ibid.

  26. Ibid.

  27. Tax Policy Center, “Key Elements of the U.S. Tax System: What are itemized deductions and who claims them?”, available at (last accessed August 2022).

  28. Ibid. For reference, the standard deduction is $12,950 for single taxpayers and for married couples filing separately.

  29. Author’s calculations based on data from the U.S. Congressional Joint Committee on Taxation, “Overview Of The Federal Tax System As In Effect For 2022.”

  30. Ibid.

  31. Ibid.

  32. Ibid.

  33. For a description of the difference between a progressive tax, a proportional—in other words, flat—tax, and a regressive tax, see this infographic from the Institute on Taxation and Economic Policy, “Progressive, Regressive, or Proportional?”, last accessed August 22, 2022, available at

  34. Jerrold Nadler and others, “SALT Delegation Letter,” April 13, 2021, available at

  35. Frank Sammartino and Kim Rueben, “Revisiting the State and Local Tax Deduction” (Washington: Tax Policy Center, 2016), available at

  36. Ibid.

  37. Douglas Holtz-Eakin and Harvey S. Rosen, “Tax Deductibility and Municipal Budget Structure,” in Harvey S. Rosen, ed., Fiscal Federalism: Quantitative Studies (Chicago: University of Chicago Press, 1988), available at

  38. Gilbert E. Metcalf, “Assessing the Federal Deduction for State and Local Tax Payments,” National Tax Journal 64 (2) (2011): 565­–590, available at For a brief description of the uses and limits of panel data, see Eric Clower, “Introduction to the Fundamentals of Panel Data,” Aptech, November 29, 2019, available at

  39. Metcalf, “Assessing the Federal Deduction for State and Local Tax Payments.”

  40. Bradley T. Heim and Yulianti Abbas, “Does Federal Deductibility Affect State and Local Revenue Sources?”, National Tax Journal 68 (1) (2015): 33­–57, available at During the period studied by Heim and Abbas, taxpayers who itemized their deductions could deduct either their sales tax payments or their income tax payments, but not both. These taxpayers were allowed to continue deducting other taxes, such as property taxes.
  41. State governments also raised more from a catch-all measure of “other taxes.” See Ibid.

  42. Ibid.

  43. Notably, researchers have not examined how the SALT deduction affects other areas of state and local policy. For example, in theory, SALT deductibility could influence housing and land use policies, at least on the margins. Because SALT allows a deduction for property taxes, it could encourage policies that raise property values. It could thereby have the effect of rewarding exclusionary zoning ordinances and other restrictions on housing supply that lessen housing affordability.

  44. Froma Harrop, “SALT deduction is progressive,” The Columbian, November 13, 2021, available at

  45. Office of Management and Budget, “Analytical Perspectives, Budget of the United States Government, Fiscal Year 2021: Tax Expenditures” (Washington: 2021), available at

  46. Author’s calculations based on data from the U.S. Congressional Joint Committee on Taxation, “Overview Of The Federal Tax System As In Effect For 2022.”

  47. Ibid.

  48. Congressional Budget Office, “The Distribution of Major Tax Expenditures in 2019” (Washington: 2021), available at

  49. Author’s calculations based on data from the Congressional Budget Office, “Budget and Economic Data.”

  50. IRS, “SOI Tax Stats – Historical Table 17,” available at (last accessed July 2022). Tax Policy Center, “Key Elements of the U.S. Tax System: How many people pay the estate tax?”, available at (last accessed August 2022).

  51. Tax Policy Center, “Key Elements of the U.S. Tax System: Who pays the estate tax?”, available at (last accessed August 2022).

  52. U.S. Congressional Joint Committee on Taxation, “Overview Of The Federal Tax System As In Effect For 2022.”

  53. Rounding does not affect this comparison in any substantial way. Estate and gift tax revenues averaged 0.30 percent of GDP from 1940 to 1971, 0.21 percent of GDP from 1972 to 2017, and 0.10 percent of GDP from 2018 to 2021. All averages are unweighted by fiscal year, and the 1976 transition quarter is counted as 0.25 years. See White House Office of Management and Budget, “Historical Tables,” available at (last accessed July 2022). For coverage of the 1976 transition quarter, see The New York Times, “$16.1 Billion Deficit Seen For ‘Transition Quarter’,” January 22, 1976, available at
  54. Wamhoff and Gardner, “Who Pays Taxes in America in 2020?”

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Nick Buffie

Former Policy Analyst, Tax and Budget Policy


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