The Economic Impact of Losing the Full Deductibility of State and Local Taxes in New York State

Source: Rockefeller Institute of Government and New York State Division of the Budget, May 14, 2020

From the summary:
Key findings are as follows:

  • The enactment of the cap on the SALT deduction reduces income available to New Yorkers. Each $1 reduction in personal income reduced total economic output in the state by $1.17.
  • If the 2017 SALT cap were eliminated, New York State’s economy would support 107,000 additional full-time jobs annually, on average, in the first seven years (2018–24). Most of the additional jobs would have been created in New York City (55,000) and the greater New York City metro area (45,000) compared with the rest of the state (8,000).
  • The employment losses are largest in the services, construction, and trade (wholesale and retail) sectors.
  • New York’s population would be 104,000 higher, on average, if the SALT cap were eliminated.
  • Total economic activity lost as a result of the SALT cap ranges from $14.4 billion to $24.5 billion annually depending on the methodological approach used for analysis.
  • Because housing prices and incomes are higher in New York City and the greater New York City metro area, these areas pay more in property and state income taxes, and take higher itemized deductions on their Federal taxes. As a result of the SALT cap, housing prices decline by 0.9 percent in New York City, 1.5 percent in the greater New York City metro area, and 0.2 percent in the rest of state on average in the first seven years.
  • The states that are most affected by the limit of the SALT deduction are those that annually contribute more to the Federal budget than they receive in program expenditures.
  • In 2018, New York ranked worst in the nation for its balance of payments, and bears the second largest increased burden as a result of the SALT deduction.