President Trump’s plan to overhaul the federal tax code threatens to fall disproportionately on residents of liberal-leaning states, a short-term boost for state governments that could turn into a long-term drag.
Most states have tied their tax codes closely to the federal code. Since the federal income tax was first levied in 1913, taxpayers have been able to deduct the state and local taxes they pay from their federal taxable income. Taxpayers who live in states with higher tax rates are able to deduct more from their federal taxes than those who live in states with lower rates
Those deductions cost the federal government more than $60 billion a year, according to the nonpartisan Tax Policy Center.
Trump has proposed ending that state and local tax deduction. Experts who reviewed Trump’s outline, issued Wednesday, said that will mean higher taxes for those who live in states with more progressive tax codes, like California, New York, Oregon and New Jersey.
“Individuals, particularly in high-tax states, would see their state tax burdens increase. The federal government is essentially subsidizing high tax rates in states like California and New York,” said Nicole Kaeding, an economist at the Center for State Tax Policy. “Those taxpayers would be impacted pretty directly by the Trump tax plans.”