Tax Reform

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

Read the original article at Reprinted with permission.

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.”

Then a month later, speaking to state and local officials at the White House:

REAGAN: “Now, I know that many are concerned about our proposed elimination of the State and local tax deduction. Well, the first point to make here is an argument for fairness-and I have a hunch that maybe somebody here’s already made this argument—but only about one in three itemize their deductions and get the benefit of that deduction. There can be no justification for a preference that gives the wealthiest—one taxpayer in three—a rebate on local taxes while its less fortunate members—or neighbors pay a full dollar locally plus higher Federal taxes in order to fund that rebate. Recently, too, I heard some good news from my home State of California. Now, California is generally considered one of the high-tax States and so, according to the prevailing wisdom, would have the most to lose from the loss of deductibility. The Los Angeles Times has reported, however, that the State Franchise Tax Board has completed a study, finding that Californians would dramatically benefit under our new plan. In the end, all America will benefit from this fairer, pro-growth tax plan. In the words of Democratic Governor Michael Dukakis of Massachusetts, ‘If my taxpayers are better off, particularly my middle-income taxpayers are better off under this plan, that’s really the issue, isn’t it?’”

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

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