Tax Plan Aims to Slay a Reagan Target: The Government Beast
- 6 years ago
Tax Plan Aims to Slay a Reagan Target: The Government Beast
This time around it might succeed where Reagan failed: Barring taxpayers from deducting state
and local income taxes and limiting the property taxes they can deduct on their federal returns, the Republican bills could, for the first time, force high-tax states run by Democrats to capitulate.
Eliminating the deduction for state and local income taxes raises their “price” for taxpayers: Those
paying a top federal rate of 35 percent get 35 percent off their state and local contributions.
Excluding payroll taxes — which pay for Social Security
and Medicare — federal tax revenues declined to 11.2 percent of gross domestic product in 2016 from 12.1 percent in 1980, when Reagan was elected, according to the Organization for Economic Cooperation and Development, a policy group of industrialized nations.
And it “would become more difficult for states to finance programs of doubtful benefit
to their taxpayers by ‘hiding’ the full cost within the federal tax system.”
Reagan ultimately failed to kill the deduction.
Bruce Bartlett, then a conservative tax expert who would go on to serve under Reagan and his successor, George Bush, estimated
that without federal deductibility, state and local spending would fall 14 percent.
“A lot of responsibility for social programs is going to shift to the states,” said Kim S. Rueben, director of the state
and local finance initiative at the nonpartisan Urban Institute.
This time around it might succeed where Reagan failed: Barring taxpayers from deducting state
and local income taxes and limiting the property taxes they can deduct on their federal returns, the Republican bills could, for the first time, force high-tax states run by Democrats to capitulate.
Eliminating the deduction for state and local income taxes raises their “price” for taxpayers: Those
paying a top federal rate of 35 percent get 35 percent off their state and local contributions.
Excluding payroll taxes — which pay for Social Security
and Medicare — federal tax revenues declined to 11.2 percent of gross domestic product in 2016 from 12.1 percent in 1980, when Reagan was elected, according to the Organization for Economic Cooperation and Development, a policy group of industrialized nations.
And it “would become more difficult for states to finance programs of doubtful benefit
to their taxpayers by ‘hiding’ the full cost within the federal tax system.”
Reagan ultimately failed to kill the deduction.
Bruce Bartlett, then a conservative tax expert who would go on to serve under Reagan and his successor, George Bush, estimated
that without federal deductibility, state and local spending would fall 14 percent.
“A lot of responsibility for social programs is going to shift to the states,” said Kim S. Rueben, director of the state
and local finance initiative at the nonpartisan Urban Institute.