Some in Washington are proposing to end a tax break, called the state and local tax deduction, that will actually increase taxes on many middle-class workers. Homeowners in all states, including deep-red ones such as Texas, stand to pay higher taxes without the ability to claim this long-standing deduction.
This fundamental principle of federalism and states' rights has always existed. The principle was put into law as part of the original federal tax code in 1913.
The idea behind the deduction is that people were already paying taxes to their respective states and cities, and the federal government agreed not to tax them twice.
If it sounds like common sense, that's because it is.
Opponents of this principle have often portrayed the deduction as favored by blue states such as New York and California. In reality, all states are affected.
The Government Finance Officers Association, in an analysis released last week, found that of the 44 million people in all 50 states who claimed the state and local tax deduction in 2015, nearly 86 percent had an adjusted gross income under $200,000. Meanwhile, more than 50 percent of the total dollar value of the deduction goes to taxpayers making less than $200,000 a year.
It's alarming, then, that some in Washington have suggested putting this critical deduction that millions benefit from at risk by proposing to eliminate it as part of tax reform. Those same Washington politicians want to limit the rights of states and local governments to develop and operate their own tax systems, hindering the ability of local governments to make decisions best for their citizens.
As the head of the group that serves as the collective voice of the nation's governors, we think that's wrong.
Our position is simple and shared by Democratic and Republican leaders alike throughout this country: If politicians in Washington want to pursue tax reform, they shouldn't do it at the expense of middle-class taxpayers, homeowners, and the state and local services they receive.
Hard-workers simply shouldn't be taxed twice on the same income. We urge Congress not to unintentionally end up increasing taxes on the middle class.
The state and local tax deductions make it easier for families to afford homes, for cities to build new schools, and for state and local governments to support essential services such as public safety and infrastructure.
The relationship between state, local, and federal taxes can seem complicated. So it's important to ask: Why was our system set up this way? Because it directly reflects the values upon which our country was founded.
Long before he was busy starring in a hit Broadway show, Alexander Hamilton was preoccupied with helping to set up our country's financial and tax system. The question of why, how, and to whom citizens would pay taxes wasn't a side issue — it was at the heart of the American Revolution. After the war, Hamilton would make it clear (in Federalist 31) that he was concerned about the relationship between the power to tax at the local level and taxes charged by the federal government.
In other words, our Founding Fathers were concerned the federal government's tax priorities would end up taking over and wanted to guard against it. They believed the best decisionmakers when it came to your tax dollars were the state and local governments representing and working in your communities.
It's the reason why, throughout U.S. history, the state and local tax deduction has endured. It's simply not a partisan issue, no matter how much Washington or the media want to portray it as such.
Good, effective government starts at the local and state level. And we'll only be able to make that possible if leaders in Washington do the right thing by recognizing the critical importance of the state and local tax deduction and acting to preserve it.
Scott Pattison is the executive director and CEO of the National Governors Association, the collective voice of the nation's governors.
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