The longstanding practice of deducting one’s own state and local taxes from their Federal taxes is under fire from GOP lawmakers in the debate to reform taxes. According to Talking Points Memo, their proposal “would raise taxes disproportionately on residents of blue states – especially middle-to-upper income people who live in New York and California.” While the suggestion treads a little too close to “conspiracy theory,” the two most prominent “blue states” would be the ones most affected by the bill.
According to a map (pictured below) from the Committee for a Responsible Federal Budget, Californians get the largest tax break at 17.2 percent. New York is a distant second at 13.3 percent. Other states—both solid and swing states—face raises in the single digits. Proponents of cutting the tax credit suggest that the deduction “subsidizes” high taxes and reckless spending at the state and local level.
While many Republicans have signed Grover Norquist’s anti-tax pledge, this proposal would violate that. However, a 2012 editorial from Philip Klein of The Washington Examiner suggests that if any tax reform concession is “worth” breaking the pledge over, this is it. Klein says that axing the state and local deduction would raise $862 billion over a decade, almost $40 billion more than what will be raised over the same time period since the Bush tax cuts expired for the richest Americans.
Frankly, this seems like a more sensible motivation for the proposal than some sort of blue-state taxing strategy. Once implemented and the latest fiscal cliff is safely averted, attempts to reinstate the Bush tax cuts (or something similar to them) might not be far behind. Yet, this plan or the one offered by TPM are pure speculation.
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Yet, it would still have to get through the Senate and that doesn’t seem likely. In a statement from Sen. Chuck Schumer, a Democrat from New York, he called any bill with such a proposal “dead on arrival.”