Deduction for state and local income taxes would go away under president’s plan
White House officials proposed eliminating the deduction as part of a broader tax package that they said will reduce federal income taxes overall. But the deduction, which nearly half of Maryland taxpayers claim, is widely popular in states with high incomes and local tax rates.
Forty-five percent of Maryland filers took the state and local tax deduction in 2014, availing themselves of the ability to not pay federal taxes on income used to pay local taxes, according to an analysis by the Tax Policy Center. The average amount of the deduction was $12,400.
“Eliminating the state and local tax deduction is one of the many ways this proposal socks it to working families in order to give big breaks to wealthy special interests,” said Democratic Sen. Chris Van Hollen of Maryland. “If your last name is Trump, this tax plan is great for your bottom line.”
At least some Republicans took a different view, arguing Trump’s ideas would simplify the tax code and reduce the effective rate paid by many filers.
Rep. Andy Harris, a Baltimore County Republican, noted the proposal would double the standard deduction, claimed by tax filers who do not itemize their deductions.
“Eliminating the deduction for income taxes, which vary greatly from state to state, should incentivize high tax states like Maryland to lower their rates,” Harris said in a statement.
A senior administration official, speaking to reporters on background to discuss the proposal candidly, made a similar point Thursday. The administration has a “fundamental problem” with what it views as an uneven playing field among states with different tax burdens. Some states, the official said, “may have to run themselves more efficiently.”
A spokeswoman for Republican Gov. Larry Hogan said the administration would wait to see the legislation before offering reaction. A spokesman for Anne Arundel County Executive Steven R. Schuh, a Republican, did not respond to a request for reaction.
Sorting out how families at a given income level would be affected is impossible because the administration has provided so little detail about its plan. For instance, the administration proposed reducing the number of income tax brackets to three from seven, but did not stipulate the income ranges that will fall into each bracket.
Because of that, the White House has been placed in a position of defending some less popular ideas — such as eliminating deductions — without being able to give taxpayers a clear sense of whether, or by how much, their overall tax burden would go down.
Trump officials initially said the plan, which would require approval from Congress, would eliminate all deductions except for those granted for mortgage interest and donations to charity. The administration has offered inconsistent answers in recent days about whether it intends to end the deduction for retirement savings, another popular provision.
The state and local tax deduction falls more heavily on high-tax states. Filers in other states — including California, New York, Connecticut and New Jersey — had higher average deduction amounts that would be eliminated under the plan.
Though many of those states are led by Democrats, the idea has met with resistance from bipartisan groups such as the National Governors Association.
“Eliminating or capping federal deductibility for state and local property, sales and income taxes would represent double taxation, as these taxes are mandatory payments for all taxpayers,” the governors group wrote in a letter this week. “We fundamentally believe that Americans’ income, property and purchases should not be taxed twice.”
And some Republicans on Capitol Hill who represent districts with high local taxes have also raised concerns. Rep. Peter King, a New York Republican, told Newsday that doing away with the deduction could be “devastating.”
Democrats in Maryland were eager to write off the plan.
“This is a tax plan by Trump, for Trump, and anybody with the last name of Trump,” said Baltimore County Executive Kevin Kamenetz, who is contemplating a run for governor next year. “The president's plan makes middle-class Marylanders worse off."
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