State Itemized Deductions: Surveying the Landscape, Exploring Reforms

Thirty states and the District of Columbia (D.C.) allow a broad category of tax subsidies known as itemized deductions, used to reduce taxpayers’ taxable income. Itemized deductions are regressive, offering the largest benefits to higher-income taxpayers and little or no benefits to low and middle-income families. Additionally, Black and Hispanic families tend to receive smaller tax cuts from itemized deductions than white families. This report outlines options state lawmakers can take to address these problems, including outright repeal, applying broad-based phase-outs or caps, and limiting specific deductions such as for mortgage interest on second homes or for charitable gifts constituting a small percentage of income.