Residents of states with higher tax rates — like California, Connecticut, New Jersey and New York — might be facing bigger tax bills if the Republicans' tax reform is kept in its current form.
Now that the Senate passed a sweeping tax reform bill, proposed changes to state and local tax and mortgage deductions could be especially damaging to those residents. State and local taxes (also known as SALT) include state sales tax, property and real estate taxes. Individuals can currently deduct those taxes as an itemized deduction.
"The change to the state and local tax deduction would reduce disposable income for many taxpayers, likely outweighing the positive effect of lower federal rates on consumption in many communities and states," said Nick Samuels, a vice president at Moody's Investor Service.
"The SALT change would also reduce financial flexibility by increasing political resistance to tax increases at the state and local level. The overall negative effect would be felt most sharply in high-tax states such as California, New York, and New Jersey," he added.