Monday, December 17, 2012
Martin A. Sullivan argues that policymakers shouldn't be so quick to curtail or eliminate the deduction for state and local taxes.
[T]he history of the 1986 act can still teach us about the next tax reform effort. Among the most relevant lessons is that among the big three itemized deductions—the mortgage interest deduction, the deductions for charitable contributions, and the deduction for state and local taxes — the last is by far the one Congress is most likely to cut. As shown in Figure 1, the deduction cost the government $62 billion in 2010, and a lot of that revenue is from upper-income households. That is an attractive pile of cash, especially if the mortgage interest and charitable deductions are off the table.
Figure 1. Distribution of Tax Benefits From the Deduction for State and Local Taxes in 2010 (from a total of $62.4 billion)
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