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A SALT on Real Estate? Housing Market and Migration Responses to the Limit on the State and Local Tax Deduction

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  • Donald Bruce

    (Boyd Center for Business and Economic Research And Department of Economics, Haslam College of Business, University of Tennessee)

  • Lawrence M. Kessler

    (Boyd Center for Business and Economic Research And Department of Economics, Haslam College of Business, University of Tennessee)

Abstract

The Tax Cuts and Jobs Act of 2017 placed a $10,000 annual limit on the deductibility of state and local taxes (SALT) for federal individual income tax purposes. This policy change likely increased the cost of home ownership for some proportion of households living in high tax areas, and we examine whether these costs were capitalized into the local housing market through slower growth in housing prices. Motivated by the possibility that the SALT deduction cap caused some taxpayers to relocate to lower-tax environments or discouraged some taxpayers from moving to higher-tax environments, we also explore the extent to which the federal deductibility of state and local taxes influences migration patterns. We make use of a variety of housing market, tax policy, and migration information to explore this possibility with event studies and differences-in-difference estimation methods. We find that the SALT deduction cap led to a sizeable and statistically significant reduction in housing price growth for affected counties but had no discernable impact on state-level migration patterns. The extent to which these impacts represent a reduction in fairness depends critically upon one’s view of the degree of fairness in the pre-TCJA policy landscape.

Suggested Citation

  • Donald Bruce & Lawrence M. Kessler, 2022. "A SALT on Real Estate? Housing Market and Migration Responses to the Limit on the State and Local Tax Deduction," Working Papers 2022-01, University of Tennessee, Department of Economics.
  • Handle: RePEc:ten:wpaper:2022-01
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    1. Augustine Denteh & D'esir'e K'edagni, 2022. "Misclassification in Difference-in-differences Models," Papers 2207.11890, arXiv.org, revised Jul 2022.

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    More about this item

    Keywords

    State and Local Taxation; Housing; Real Estate; Migration;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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