Economist Stephen Moore, one of the architects of President Trump’s tax reform plan, wants to do away with the state and local tax deduction, claiming that such a move could help lower taxes by $1 trillion.
According to Moore, “We do need the trillion dollars of revenue you get from eliminating the state and local tax deduction to pay for the lower tax rates on businesses and families, because we want to get this to about a $2.5 trillion tax cut, and a trillion of that will come from eliminating the state and local tax deduction.”
He further explained, “This is a provision of tax code that is quite unfair to the low-tax states and I would make the case also that if you are for limited government and more private sector growth, then there is absolutely no question that the fact of state and local tax deduction is to encourage more public provision of goods and services and fewer private provisions of services.”
Debunking critics’ fears that state and local governments would suffer from the Trump tax cut, Moore explained that the money that will not be used on taxes will stay in the states.
“The idea that states and localities are going to be victims of the Trump tax cut are 100 percent reversed of the truth, so the biggest beneficiaries of this federal tax cut—which will be somewhere at the end of the day about $2.5 trillion over 10 years—will be state and local governments,” he said, adding, “When the federal government doesn’t take $2.5 trillion from the taxpayers of states, that’s $2.5 trillion that stays in the local and state economies that never has to go to Washington in the first place.”
Moore also noted that the elimination of this deduction can bring about an additional 0.5 percentage point growth to the economy, which will help state and local governments even more.
“The most important thing by far for state and local governments in terms of paying their bills is a strong national economy, and this will help us get it there,” he stated.
More than 100 state legislators recently sent a letter to Congress, urging them to get rid of the state and local tax deduction and pass tax reform.
“Eliminating the state and local tax (SALT) deduction would provide upwards of $1.5 trillion over the next decade to implement broad-based tax cuts nationally. This overhaul would spur the growth in economic output needed to jolt business investment, personal income growth, and job growth,” the legislators wrote.
“For many taxpayers outside of the high-tax locales, the savings from lower federal rates will outweigh the loss of the federal deduction even without positive changes at the state and local level. Abolishing state and local tax deduction would force residents to take a much harder look at their state and local tax rates.”
An updated study released last month warned that millions in the middle class also could be affected by the repeal of the tax break, according to a report in CNN Money.
The study, conducted by the Government Finance Officers Association, using IRS data, found that nearly 40% of tax filers making between $50,000 and $75,000 in 2015 claimed the deduction. That is nearly 7.6 million households.
Of those making between $75,000 and $100,000 (6.9 million households), 53% claimed it, as did 76% of those making between $100,000 and $200,000 (13.9 million households).
Some will argue that a six-figure income–up to $200,000–should never be considered “middle class.” But the article points out that it depends on how large your household is and where you’re located. A $150,000 income for a family of five in a high-cost, high-tax city, for instance, would most likely be considered middle-class for that area.
Conversely, a single person bringing in $75,000 in a low-cost, low-tax city might be considered very well-off, relatively speaking.
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