With President Trump proposing to eliminate the Federal tax deductions for state and local taxes, there has been an outcry from states that allow this deduction currently. The biggest criticism is that it creates “double taxation” because it forces individuals to pay two separate taxes – federal and State – on the same income- without giving any relief against the federal tax in recognition of the tax paid to the State. Without the deduction, Lawmakers warn that tax bills will rise substantially for their citizens.
However, the truth is that these attacks are nothing more than an attempt to shift the focus away from affected states (like New York, New Jersey, and California) who are failing their fiduciary responsibility to its taxpayers. They currently levy a very high level of taxation upon its citizens. The deduction is simply a subsidy that masks the egregious overspending of the state which creates the situation in which high taxation is necessary to feed the body politic.
Why should the federal government have to subsidize some states at all? If the residents of these states think that high (some would say ludicrously wasteful) government spending paid for by very high taxes is the right way to run a state, it is certainly their right. But these residents also have no right to ask taxpayers of other states to subsidize them. And that is exactly what happens when the federal tax code enables some states to reduce their federal tax — via the state and local tax deduction — simply because they pay high taxes to their states.
So yes, although the proposal will hurt some citizens, it is essentially and simply a reform that puts all taxpayers around the country on a level playing field, especially if it helps to reduce federal tax rates across the board. If lawmakers are so concerned with their affected taxpayers, they should aim to reduce the scope and size of their state governments and the wildly out of control spending that created it, instead of expecting other citizens to subsidize their irresponsibility.
