Eliminate
the State and Local Tax Deduction

President
Trump and the congressional Republican leaders are attempting to eliminate the state
and local tax deduction. Doing this would be one of the largest deductions to
ever take place. Those who live in the United States and pay taxes already, are
subject to pay taxes by multiple levels of the government. With this tax policy
being a very significant form of federal aid, the deduction could potentially cause
many problems with businesses and taxpayers. In this paper, I will discuss what
this policy plan means, why it is happening, and what the advantages and
disadvantages could be. Some argue that this plan could potentially put a huge
target on the higher-incomed taxpayers and that this could help the low and
middle-income people, but nobody knows for sure until it happens.

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The
main purpose of this tax reform is to allow the economy to become much stronger
than is currently is. To do this, the tax rates must be lowered. This tax
policy currently allows taxpayers to deduct certain taxes from their federal
returns. The deduction could lead to a much greater need, regarding income and
property taxes. This policy could also potentially benefit those who pay their
taxes by putting a tax burden on the federal government. Eliminating most of
the itemized deductions is something the GOP is trying to attempt. This would eventually
make taxpayers unable to deduct their property, sales and other taxes on their
federal tax returns. The GOP is encouraged to eliminate the state and local
deduction because they find it as an encouragement for state and local
government to raise their taxes higher; this would make them keep their taxes low.

 

The
elimination of the state and local tax deductions has been a major rebate with
the Republicans for many decades now. This would not be the first time this deduction
was trying to get eliminated. According to Metcalf, Gilbert E., this deduction
was under attack in the debates that led to the Tax Reform Act of 1986 (TRA86).
The deduction was attacked again by President George W. Bush’s Advisory Panel
on Federal Tax Reform and more recently by the National Commission on Fiscal
Responsibility and Reform (2010) (Metcalf, Gilbert E.). The purpose of eliminating
this is to help pay for the personal and business tax cuts. Majority of people
who receive the tax break are the higher-incomed individuals. Eliminating this would
be the second-largest source of revenue to be under the tax proposal and one of
the biggest revenue increasers. According to Bush, Daniel with the PBS news
hour, this repeal could cost $2.4 trillion over the next 10 years.

This
new policy could hurt the higher-incomed taxpayers because it would eliminate
the state and local taxes and deductions, making the federal income tax much more
broad-minded. The policy could also potentially take the heavy burden off
higher incomed residents and cause the lower and middle classes to suffer and
struggle a lot more; by making them unable to claim some of their taxes, like
real-estate and personal expenses on their federal income. However, it would be
impossible to know who would or would not benefit from this. The policy could
cause state and local governments to raise their taxes. This reduction in the “price”
of the state’s taxes encourages states to raise their taxes higher than they
otherwise would, because taxpayers offer less resistance since they do not pay
the full cost of the higher taxes (Dubay, Curtis, 2013).  This plan can
also hurt the federal business tax collections by causing the costs to rise.
The states who are most likely to benefit the most from this plan is California
and New York because this is where the higher-incomed individuals are. On the
plus side, the standard deduction will nearly double for those who file as
married or single; meaning that many people may not have to pay federal income
taxes at all.

Conclusion: whether
you are for or against this new policy. Also, you need to make conjecture on
how this policy will affect U.S. economy for next 5 years.

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