Conservative state and local lawmakers affiliated with the American Legislative Exchange Council on Monday called on Republicans to follow through with their plan to eliminate the be and argued that the tax break subsidizes high-spending states.
Last week, Republicans in the House of Representatives mulled a compromise on the original plan of eliminating the deduction in order to address the concerns of members in blue states like New York and New Jersey. On Monday, the council sent a letter from more than 100 state and local officials telling them not to compromise and, instead, kill the roughly $1.3 trillion tax break and use the federal revenues to lower federal tax rates. Doing so would force states and cities to rework their tax systems, the letter read.
The group's argument is that the deduction allows states and cities to pursue higher taxes than they otherwise would by passing off some of the cost to the federal government through the deduction. The deduction allows taxpayers to subtract taxes paid to state and city governments from their federal taxable income.
"Some of our competitors are depending on taking money from our good citizens to subsidize their overspending and lack of restraint," said Indiana state Sen. Jim Buck, speaking on a call with reporters Monday. "That's highly unfair to those of us trying to do it right."
Democrats say eliminating the break could result in tax hikes for some families. The White House has countered by portraying it as an unfair advantage to high-spending states. "It's unfair that a state that is well-run is really subsidizing states that have been horribly mismanaged," President Trump said last week in an interview with Fox News.
Representatives from New York and other high-tax states, however, have countered that their states pay more into the federal Treasury than they receive in benefits, regardless of the effects of the one tax deduction.
Nevertheless, conservatives maintained that the tax reform as a whole will be a boon to blue states as well as red ones. "The biggest beneficiaries of this federal tax cut ... will be state and local governments," said Stephen Moore, a Heritage Foundation analyst who helped Trump devise his campaign tax reform plan. He said more money will be left in states and localities to boost their economies.
On Monday, Trump said at a press event that Republicans are reviewing the tax plan to ensure that middle-class families don't see tax hikes from provisions like eliminating the state and local tax deduction. "We are doing minor adjustments," Trump said. "We want to make sure the middle class is the biggest beneficiary."