President Donald Trump’s plan to eliminate the state and local income tax deduction as part of his ambitious tax reform package drew a quick response and statements of concern from the seven leading organizations that represent state and local governments at the federal level, including NACo.
In a statement issued April 26, the National Governors Association, NACo, the National League of Cities, U.S. Conference of Mayors, International City/County Management Association, National Conference of State Legislatures and The Council of State Governments said:
“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. We fundamentally believe that Americans’ income, property and purchases should not be taxed twice.”
The groups said the proposal could also effectively increase marginal tax rates, shrink disposable income, and possibly harm the U.S. economy.
It also puts at risk the carefully balanced fiscal federalism that has existed since the permanent creation of the federal income tax over 100 years ago and the role it plays in community vitality.
“The state and local tax deduction and tax-exempt municipal bonds were part of the original tax code in 1913 and have long served to meet critical needs in our communities. These essential components of the tax code support vital investments in infrastructure, public safety and education, encourage economic growth and provide states and local governments with the flexibility to deliver essential services to our residents.”
Earlier this month, the group sent a letter to all members of Congress urging them to preserve the tax exemption for municipal bonds and the state and local tax deduction.
In 2015, almost 38 million families and individuals with gross adjusted incomes of $200,000 or less took the deduction. Their deductions accounted for 53 percent of the total amount deducted through the state and local deduction.