Party Lines Blur on Deducting State and City Taxes

In Taxes, Uncategorized On

Congressional Republicans have indicated that they will go it alone on tax legislation, but taking on such an entrenched interest usually requires bipartisan support.

“If Republicans do it by themselves, they put a big target on their backs,” Mr. Gale said. Members of Congress generally take a “political Hippocratic oath” to “never be seen to do obvious harm,” he said, but eliminating the deduction, which would increase taxes and undermine the ability of cities and states to raise revenue, would violate that precept.

A raft of organizations that represent state and local governments — including the National Governors Association, the United States Conference of Mayors and the National Conference of State Legislatures — denounced the measure, saying it would upset the balance between local and federal interests and undermine growth. “We fundamentally believe that Americans’ income, property and purchases should not be taxed twice,” the organizations said in a statement.

Other interest groups have also registered their opposition, like the National Association of Realtors, which said that eliminating the state and local deduction would help “nullify the current tax benefits of owning a home for the vast majority of tax filers.”

The idea of preventing the federal government from taxing money that citizens must pay to state and local tax collectors goes back to the Civil War, and the deduction was included in the first income tax legislation. One fear, articulated by Alexander Hamilton in the Federalist Papers, was that the federal government might try to monopolize taxation “to the entire exclusion and destruction of state governments.”

Striking a blow at the taxing power of cities and states has long appealed to conservative Republicans. They argue that the deduction works like a subsidy and encourages states — particularly those dominated by Democrats — to set higher rates and spend more taxpayer money.

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