(AP) – Monday, 24 July 2017 08:34 AM
Republicans aren’t usually big on raising taxes, but they’re really eager to eliminate the federal deduction for state and local taxes.
Why? A look at the states that benefit the most from the tax break helps explain it — they are all Democratic strongholds, or so-called blue states. New York, Connecticut, New Jersey and California top the list of states where taxpayers get the biggest deductions. Not a single Republican-leaning state ranks in the top 10.
“Although Republicans usually recoil at any type of tax increase, cutting this tax break would almost be fun for them,” said Martin Sullivan, chief economist for Tax Analysts. “It provides massively disproportionate deductions to high-tax states controlled by Democrats.”
Proposals by House Republican leaders and President Donald Trump would repeal the tax break as part of their packages to overhaul the American tax code. But they are getting a lot of pushback from Republican lawmakers in Democratic-controlled states.
The standoff illustrates how hard it is for Congress to eliminate any popular tax break, even one that primarily benefits the ruling party’s political opponents.
Almost 44 million people claimed the deduction in 2014, according to IRS statistics. That’s nearly every taxpayer who itemizes deductions, a little less than 30 percent of all taxpayers. Sullivan analyzed which states would be hit hardest by repealing the tax deduction. The Associated Press did a similar analysis and came to the same conclusion.
There’s more at the original, but, if we are to take their rhetoric at face value, the Democrats ought to be on board with this. After all, they believe that taxes should be raised on the top producers, and the state-and-local tax deduction is valuable only to those who have itemized deductions greater than the standard deduction.¹
The ‘blue states’ tend to have higher incomes, coupled with higher costs of living. The Associated Press article continued to note that, nationwide, the average state-and-local tax deduction is close to $11,800, but in New York, it’s more than $21,000, while Connecticut, New Jersey and California² follow at approximately $18,900, $17,200 and $17,100, respectively.
I joked, many times, that the house I bought in Jim Thorpe, Pennsylvania for $87,500 in 2002 would have cost $287,500 in Conshohocken, the Philadelphia suburb in which I worked at the time. That not only kept my mortgage payments much lower, but it also kept my property taxes down.³ That’s an anecdote, of course, but it reflects another great truth: not only would this proposal have a greater impact on blue states, but a greater impact on the blue areas of both blue and red states.
There is another consideration, however. Many people who itemize deductions can only do so with the combination of both state and local taxes, plus the mortgage interest deduction; those two major deductions, by themselves, are lower than the standard deduction for many people who currently itemize. Elimination of the state-and-local tax deduction will push many working-class homeowners to the standard deduction, rather than being able to itemize.
The Democrats’ greatest strength is concentrated in urban areas, areas which have higher salaries and wages, but also higher costs of living. These are the areas voting for the higher taxes that Democrats propose, and it’s only right that they should pay those higher taxes! Unfortunately, some good Republicans will get hurt by this as well, but, overall, this could be a very good thing.
Cross-posted on The First Street Journal.
¹ – Standard deduction, 2016 and 2017, depending upon filing status:
- Single – $6,300 (2016); $6,350 (2017)
- Married Filing Jointly – $12,600 (2016); $12,700 (2017)
- Head of Household – $9,300 (2016): $9,350 (2017)
- Married Filing Separately – $6,300 (2016); $6,350 (2017)
- Qualifying Widow(er) – $12,600 (2016); $12,700 (2017)
² – While California, by the Official Poverty Measure, had only the 17th highest poverty rate in the nation, when using the Census Bureau’s Supplemental Poverty Measure, which takes into account various factors including the costs of living, the Pyrite State has the nations’ highest poverty rate. Using the same measure, my new home state of Kentucky drops from a 20.7% poverty rate down to 16.0%, due to much lower costs of living.
³ – Pennsylvania’s state income tax is relatively low, at a 3.07% flat rate, but the Keystone State nickel-and-dimes you to death with fees on almost everything, along with the highest gasoline tax in the nation. You can deduct the state income tax and property taxes, or you can deduct sales taxes (if you’ve kept records), but the state gasoline tax is not deductible.