The Corner

Politics & Policy

Reagan’s Argument for Eliminating the State and Local Tax Deduction

From the midweek edition of the Morning Jolt:

Reagan’s Argument for Eliminating the State and Local Tax Deduction

You’ll recall that I’m wary about the GOP proposal to eliminate the federal tax deduction for state and local taxes. I argued it amounts to a punishment for a lot of people who voted for Trump in places like New York, New Jersey, and California. I thought one of the reasons Republicans wanted to cut taxes was to let people keep more of their money, so they will then use it to buy things and stimulate the economy. Eliminating the deduction would dramatically reduce the impact of the coming tax cut for millions of Americans.

America Rising reaches out, sharing two clips of President Ronald Reagan calling for this deduction to be eliminated. First, in an address to the nation, May 1985:

REAGAN: “We’re reducing tax rates by simplifying the complex system of special provisions that favor some at the expense of others. Restoring confidence in our tax system means restoring and respecting the principle of fairness for all. This means curtailing some business deductions now being written off; it means ending several personal deductions, including the state and local tax deduction, which actually provides a special subsidy for high-income individuals, especially in a few high-tax states. Two-thirds of Americans don’t even itemize, so they receive no benefit from the state and local tax deduction. But they’re being forced to subsidize the high-tax policies of a handful of states. This is truly taxation without representation.”

First… doesn’t it feel good to hear that voice again?

Second, the Reagan argument is compelling, but it basically contends that those who find their cumulative level of federal, state, and local taxation unbearable should move to different states. That may work as economic theory, but many Americans won’t find that easy to do for a variety of reasons – jobs, families, roots, etc. And if these frustrated taxpayers did move from these blue states to red states, this policy change would basically drain the blue states of the voters most concerned about taxes.

Thirdly… did Republicans tell the voters they wanted to do this on the campaign trail in 2016? It wasn’t mentioned in the party platform at the convention.

Fourthly… in the House of Representatives, there are 14 Republicans from California, 9 Republicans from New York, and 5 Republicans from New Jersey. How many of those Republicans get reelected if their constituents feel like they missed out on the tax cut the rest of the country got? Keep in mind, Democrats need to flip 24 seats to take over the House.

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