TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, December 17, 2012

National Review: The Blue Tax

National Review:  The Blue Tax:

Republicans have agreed to a tax increase of $800 billion over ten years as part of the negotiations regarding the so-called fiscal cliff. Even as Republicans refuse to call it a tax hike (“revenues,” indeed), there are better and worse ways to go about this unpleasant business, and one simple reform would raise all that money and more: eliminating the federal deduction for state and local taxes. While we would prefer no tax increase at all, eliminating this deduction would be a sensible reform of the tax code, and could be paired with tax cuts elsewhere for a fiscally neutral simplification of our byzantine tax code.

Estimates suggest that eliminating this deduction would raise as much as $900 billion over ten years, though it may well turn out to be less as taxpayers modify their behavior in light of the new incentives. That won’t balance the budget with deficits running that much or more every single year, but it is nothing to turn the national nose up at, either: $900 billion would completely offset the estimated deficit for 2013. Progressives should welcome eliminating the deduction in that the new tax burden would fall much more heavily upon those earning $200,000 or more. As Reihan Salam points out, households in the $200,000-and-up range would pay an average of $5,166 more without the deduction, while those in the $30,000-to-$50,000 range would pay only $70 more.

A tax reform that more than clears the $800 billion mark, falls most heavily upon the wealthy, and has the support of many conservatives: You would think that the Democrats would be quick to embrace such a thing. But to the great surprise of no one, the party’s house organ has editorialized against it. ...

We have 50 different states for a reason: Texas can have its low taxes and economic growth, and Connecticut can have its high taxes and lavishly subsidized abortions. But there is no reason for the federal government to subsidize Connecticut’s high taxes — or Texas’s crony-capitalist “economic development” schemes. The tax code is not here to provide a national carrot and stick. It is here to raise money, which Congress and the New York Times believe the government needs more of, so long as it does not derail any gravy trains in Albany or Sacramento. 

(Hat Tip: Glenn Reynolds.)

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I'm wondering if they took into consideration the fact that these taxes are AMT adjustments, and for most in that income range, that deduction is already limited.

Posted by: Linda C. | Dec 18, 2012 3:38:55 AM