by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Roy Cordato argues that Congress should not get rid of the existing federal income tax deduction for state and local taxes.
… [T]o call this deduction a subsidy of one set of taxpayers by another is to put the cart before the horse. The first question that needs to be answered is, is it appropriate, from either an ethical or economic efficiency perspective, to tax the revenues used to pay state and local taxes in the first place? Just because under a particular tax regime some people are penalized less than others doesn’t mean that those who are penalized less are automatically subsidized by those who are penalized more. In a tax setting, to subsidize means either to directly take income from some and transfer it to others or to benefit some categories of taxpayers by allowing them to operate under a different set of rules than all other tax payers. The deductibility of property and sales taxes does not fit either of these categories.
Meanwhile, Ali Meyer of the Washington Free Beacon helps fuel the other side of the debate.
Eliminating the state and local tax deduction through President Trump’s tax reform framework could help lower taxes by $1 trillion, according to economist Stephen Moore, who helped put the original tax plan together.
Moore says eliminating the state and local tax deduction will increase revenues for the government over the next decade by $1 trillion, which can be used to cut tax rates even lower.
“We do need the trillion dollars of revenue you get from eliminating the state and local tax deduction to pay for the lower tax rates on businesses and families because we want to get this to about a $2.5 trillion tax cut, and a trillion of that will come from eliminating the state and local tax deduction,” Moore explained in a conference call. “This is a provision of tax code that is quite unfair to the low-tax states and I would make the case also that if you are for limited government and more private sector growth then there is absolutely no question that the fact of state and local tax deduction is to encourage more public provision of goods and services and fewer private provisions of services.”