Eliminating The State And Local Tax Deduction Is A Terrible Idea

The tax “reform” currently being discussed in Washington is mostly a political exercise for politicians who can use the process to extract more campaign contributions from supporters, and punish non-supporters. The actual tax burden imposed on Americans overall will change little. 

The proposed elimination of the deduction for state and local taxes (SALT) is an excellent illustration of how the tax reform is really about playing political games. Forever in pursuit of “revenue neutral” tax reform, the GOP is simply turning to the elimination of the SALT deduction so it can raise federal revenues, and this allow for a tax cut for some other well-heeled special interest group. 

But the SALT deduction is no mere ordinary tax reform. It is a deliberate effort to use the tax code to lessen state and local autonomy, and to drive ever more tax revenues to the federal government at the expense of state and local governments. 

In other words, the deduction’s elimination will increase the relative power of the federal government over state and local governments by claiming an ever larger share of taxpayers’ wallets. By increasing the federal government’s share of all tax revenues collected, the federal government will also then be in a better position to control state governments with federal grants, just as it uses federal funds today to threaten states that don’t comply with federal mandates. 

Americans Pay Most of their Taxes to the Federal Government 

At the core of the GOP’s drive to eliminate the SALT deduction is the assumption that state and local taxes are “too high” while federal taxes are apparently either just right, or even too low. After all, the stated goal of the reform is to raise the federal tax burden in this area in the hopes that state and local taxes will go down. Congress, however, is in no position to lecture anyone about excessive taxation. 

Moreover, it’s hard to see how anyone could come to the conclusion that the federal tax burden is the more harmless piece of the puzzle. The federal government already — by far — receives the largest share of the tax revenue pie.1