Congress must find middle ground on state and local tax deduction

Congress must find middle ground on state and local tax deduction
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One of the sticking points to passing generational tax reforms for all Americans is the ability for state taxpayers to deduct their state income tax and real property tax from their federal income tax liability. Currently, taxpayers who itemize their deductions on their federal income tax returns are entitled to deduct state and local real estate and personal property taxes, as well as their income tax or general sales tax.

Both the House and the Senate are wrestling with what deductions will stay and what deductions will go in order to simplify federal income tax filings and make it more fair and equitable for all. Both the House and Senate tax bills preserve the deductibility for charitable contributions and home mortgage interest, although there may be negotiated caps to it. The differences are that the House bill would allow a deduction for up to $10,000 in property taxes, but end deductions for income or sales taxes. The Senate bill would eliminate all of them.

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Some states like California, New York, Illinois and New Jersey are livid that Congress is considering ending these deductions and claim that such actions will amount to a tax increase for its citizens and is unfair in that it targets them to their detriment. Does the ability to deduct state and local taxes amount to a federal government bailout or handout? Does the ability to deduct state and local taxes enable states and local governments to be less accountable to their citizens?

Let’s look at the financial health of the big states I have mentioned and who claim to have the most to lose should Congress eliminate or curtail the ability to deduct state and local taxes. According to a report by the Mercatus Center of George Mason University, “On the basis of its fiscal solvency in five separate categories, New York ranks 39th, California ranks 43rd, Illinois ranks 49th, and New Jersey ranks 50th among the U.S. states for its fiscal health.”

In April, USA Today published the rankings of all states with regard to real property taxes and found that New Jersey ranked first for the highest real property taxes in the country followed by Illinois, New York ranked seventh and California 35th. Last month, USA Today found that our two most populous states, New York and California, are among the top tier of state income tax burdens in the country. New York ranked first and California ranked fifth, while Illinois and New Jersey are within the top 10 as well.

There is no doubt that the elimination or reduction of state and local taxes from federal income tax returns will be a huge wakeup call for states and local governments to get their financial houses in order. Why should the rest of the nation pay for the mismanagement and largesse of state and local governments?

Our biggest states are poorly managed and are gouging its citizens with high taxation and unsustainable debt. The federal government today enables bad governance at state and local levels by allowing deductions without qualification or obligation. The constituencies of state and local governments should not be angry with those in Congress advocating for the elimination or reduction of state and local tax deductions on their federal income tax returns. They should direct their anger to those most responsible, and that is their state and local officials. Citizens should demand fiscal discipline, accountability, fairness and transparency from their state and local officials.

States and local governments must be held to account within its own borders by its own citizenry. Following the Constitution, the federal government should do what is required and not be the underwriter of poorly managed states. States should pick up where the federal government leaves off and provide all the services that their own populations can afford.

Congress should find middle ground with regard to the deductibility of state and federal taxes. It should also sunset the deduction over period of 10 years. This would allow states to get their financial houses in order and to plan well in advance for the lost benefits. The federal government certainly does not have “clean hands” when it comes to fiscal responsibility or discipline, but this “monkey see, monkey do” excuse is no reason to give states a windfall on the backs of all Americans.

Bradley A. Blakeman is a political consultant who served as a member of President George W. Bush’s senior White House staff from 2001 to 2004. He is a frequent contributor to Fox News and Fox Business.