AI Interview: the SALT IRS Deduction
The whole discussion of the SALT deduction that is taking place as part of the Congressional campaigns is completely out of sorts with the reality of the tax structures being discussed.
Republicans assume that Trump fixed something that was broken.
He didn't.
Democrats assume that the previous system was all OK.
Democrats assume that the previous system was all OK.
It wasn't.
Some states have high real property taxes, like New York (which is among the highest in the nation). Others have very low real property taxes.
And sales tax rates vary from state to state, as do other SALT expenses.
Thus, the deductibility of these from federal income taxes creates an imbalance in the tax burden favoring the people in states with higher taxes.
Further bedeviling the situation is the political landscape: where many of the higher property and other local taxes are led by Democratic Party officials and the lower property tax states, by Republican Party officials.
For the above reasons, and more, this has been a political football for a long time.
One additional note regarding New York and states like it:
Real property taxes are, at the core, a wealth tax. They are based upon the value of the real property and improvements. In Westchester County, NY, for example, a cutoff of $40,000.00 means the property is worth more that $1.5 Million, which adds a class dynamic to the political considerations.
Per Google AI:
Q.- What would be the average approximate value of a home in Westchester County, NY with a property tax of $40,000 annually?
A.- A home with an annual property tax of $40,000 in Westchester County, NY, has an approximate market value between $1.6 million and $2.2 million, based on typical effective tax rates ranging from 1.8% to 2.5%.
Understanding Westchester Property Tax Rates:
Average Effective Rate:
Most towns and school districts in Westchester County feature effective tax rates between 1.8% and 2.5% of a property's market value.
The Math:
At a higher tax rate of 2.5%, a $40,000 tax bill points to a home value of roughly $1,600,000.
At a moderate tax rate of 2.0%, it points to a home value of roughly $2,000,000.
At a lower effective rate of 1.8%, it points to a home value of roughly $2,220,000.
Key Factors That Change the Estimate
School Districts:
Local school taxes make up the largest portion (often 60% or more) of a Westchester tax bill, meaning districts with higher per-pupil spending change the ratio.
Assessed vs. Market Value:
Municipalities don't always assess homes at 100% of market value, using equalization rates or residential assessment ratios to determine the final taxable amount.
Exemptions:
STAR exemptions or veteran credits can lower the taxable value, meaning a home paying $40,000 in taxes might actually be worth slightly more if exemptions are applied.
Why the Huge Gap?1. School District Funding: Roughly 60% to 70% of your Westchester property tax bill funds your local school district. Suburbs with exceptionally high-ranking, independently funded school districts command much higher effective tax rates.
2. City vs. Town Structures: Cities like Yonkers generate significant revenue from local city income taxes, allowing them to keep property tax rates relatively low. Conversely, high-tax villages rely almost entirely on real estate levies to fund local government.
3. Outdated Assessments: New York uses "Residential Assessment Ratios" (RAR) because many towns haven't completed modern municipal-wide property reassessments in decades. Two homes with identical market values in different towns can sometimes face entirely different structural tax bills because of local assessment math. [1, 7, 8]
AI responses may include mistakes.
Q.- What are the highest real property tax states and can you correspond that with whether or not they are Democratic or Republican party led state governments?
A.- New Jersey and Illinois have the highest effective real property tax rates in the United States, both sitting at approximately 1.88% to 2.11% of home value . [1, 2]
Top Highest Real Property Tax States and Political Control
Property taxes are primarily levied by local governments (counties, municipalities, and school districts), but state-level political leadership often influences overall tax policy and local funding structures.
New Jersey: Effective rate ~2.11% (Democratic-led state government / Trifecta)
Illinois: Effective rate ~2.01% (Democratic-led state government / Trifecta)
Connecticut: Effective rate ~1.81% (Democratic-led state government / Trifecta)
New Hampshire: Effective rate ~1.66% (Republican-led legislature and mixed/traditional executive control)
Vermont: Effective rate ~1.59% (Democratic-led legislature / Republican Governor split)
New York: Effective rate ~1.55% (Democratic-led state government / Trifecta)
Nebraska: Effective rate ~1.49% (Republican-led state government / Trifecta)
Texas: Effective rate ~1.49% (Republican-led state government / Trifecta)
Political Correlation Overview
• Democratic-Led States: Four of the top six highest-rate states (New Jersey , Illinois , Connecticut , New York) are firmly under Democratic party governance . These states generally rely on broader public service funding models that generate high local property tax burdens.
• Republican-Led States: States like Texas and Nebraska rank in the top ten for high property tax rates despite being firmly Republican-led . This occurs because these states do not levy a state personal income tax, forcing local jurisdictions to rely heavily on real estate levies to fund public schools and infrastructure . Similarly, New Hampshire lacks broad-based income and sales taxes, resulting in a high reliance on local property taxes under mixed or conservative governance . [4, 6, 7, 8]
AI responses may include mistakes.
[8] https://www.leaserunner.com/blog/highest-property-tax-states
Conversely, the states with the absolute lowest overall tax burdens are primarily Republican-led governments.
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Republican-Led Contrast: Republican-controlled states lean heavily toward tax compression to stimulate economic investment. Of the states with the lowest total tax burdens—such as [Alaska](https://www.google.com/search?kgmid=/m/0hjy) (4.92%), [Tennessee](https://www.google.com/search?kgmid=/m/07h34) (6.21%), [Florida](https://www.google.com/search?kgmid=/m/02xry), and [Wyoming](https://www.google.com/search?kgmid=/m/0846v)—almost all are led by Republican trifectas and intentionally levy 0% state income taxes to keep the overall state and local burden low. [1, 2, 4, 5, 6, 7]
Q.- The same question only considering all state and local taxes.
A.- When analyzing the total state and local tax burden—which combines property tax, income tax, and sales/excise taxes as a percentage of personal income—the states with the heaviest tax burdens are overwhelmingly Democratic-led governments (Trifectas). [1, 2]
Conversely, the states with the absolute lowest overall tax burdens are primarily Republican-led governments.
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Political Correlation & Drivers
Political Correlation & DriversHorizontal ideological differences between the two major parties create distinct tax environments at the state level:
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Democratic-Led Alignment: Democratic trifectas generally prioritize robust public services, highly funded public school systems, mass transit, and extensive social safety nets. To fund these operations, these states rely on a combination of high individual income taxes (e.g., [New York](https://www.google.com/search?kgmid=/m/059rby), [California](https://www.google.com/search?kgmid=/m/01n7q)) and high property taxes (e.g., [New York](https://www.google.com/search?kgmid=/m/059rby), [Vermont](https://www.google.com/search?kgmid=/m/07_f2)). [2, 4, 5]
Democratic-Led Alignment: Democratic trifectas generally prioritize robust public services, highly funded public school systems, mass transit, and extensive social safety nets. To fund these operations, these states rely on a combination of high individual income taxes (e.g., [New York](https://www.google.com/search?kgmid=/m/059rby), [California](https://www.google.com/search?kgmid=/m/01n7q)) and high property taxes (e.g., [New York](https://www.google.com/search?kgmid=/m/059rby), [Vermont](https://www.google.com/search?kgmid=/m/07_f2)). [2, 4, 5]*
Republican-Led Contrast: Republican-controlled states lean heavily toward tax compression to stimulate economic investment. Of the states with the lowest total tax burdens—such as [Alaska](https://www.google.com/search?kgmid=/m/0hjy) (4.92%), [Tennessee](https://www.google.com/search?kgmid=/m/07h34) (6.21%), [Florida](https://www.google.com/search?kgmid=/m/02xry), and [Wyoming](https://www.google.com/search?kgmid=/m/0846v)—almost all are led by Republican trifectas and intentionally levy 0% state income taxes to keep the overall state and local burden low. [1, 2, 4, 5, 6, 7]While a few Republican-led states have high individual categories (like [Texas](https://www.google.com/search?kgmid=/m/07b_l) with high local property taxes), their lack of state income tax keeps their total combined state and local tax burden significantly lower than the Northeast and West Coast Democratic strongholds. [2, 8]
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If you'd like to dive deeper, let me know:
* Do you want to look into how a specific state breaks down its income vs. sales taxes?
* Are you interested in the historical shift of states cutting or raising taxes over the last few years? [2, 6]
