Friday, November 3, 2017

Tax Reform Includes Repeal of State Tax Deduction

The elimination of the deduction for state and local taxes will hit residents of states like California, New York, New Jersey, Connecticut, and Illinois. This deduction, a distort that incentivized aggressive taxation of high income individuals in some states, increased state and local revenues on the back of US taxpayers. Ending this deduction will shift the burden of accountability from the federal to state level. A fairer tax code between states will redefine the competition for personal and corporate residency within the United States. Citizens and businesses will be further incentivized to leave high tax states and counties.  Don't expect representatives of high tax zones to support this plan; it's likely why the deduction has lasted so long.

Headline: Best part of Republican tax plan is repeal of the state tax deduction

The latest Republican tax reform framework promises to lower statutory rates and repeal scores of tax preferences. The centerpiece of the reform of the individual income tax is the repeal of the largest itemized deduction, which is for for state and local taxes. Repealing this deduction alone can finance a cut in the top tax rate to 35 percent and a reduction in other rates, preserve the tax code’s progressivity, substantially increase the number of taxpayers on the standard deduction, and cut taxes for half of all filers.



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