Saturday, November 18, 2017

End State and Local Tax Deductions? Think again!

    I am waiting to see what the Senate does, but so far, for the first time with this Administration, I am not pleased.

    The proposed legislation to overhaul the messy tax system does have two very good points:

    (1) making corporate taxes less punitive so American industry does not go overseas. Even the high (individual and family) taxing Euros understand this concept, as their corporate taxes are low.

    (2) It is also wonderful to eliminate the messy and convoluted Alternative Minimum Tax (AMT), something even people like me who prepare tax returns for a living often find surprising.

    The original motive for the AMT in 1969 was to insure that some wealthy individuals who had completely sheltered their income, often in government bonds, still had to pay up. However, inflation since then has now subjected millions of taxpayers to this byzantine mess.

    And frankly, if some wealthy Americans want to own nothing but Government debt, good for them. The rates of returns on such bonds are substantially lower than normal securities, and I would rather have wealthy Americans own the national debt than wealthy foreigners.

    However, there are some Republicans who are just giddy about removing or limiting itemized Federal deductions for state and local taxes, thinking they are punishing those higher tax (presumably Democrat) states. They really should think again:

    1. Don't we want more governmental programs handled at the state and local level. Frankly, I would be happy to watch all state taxes spike up, if, in return, certain Federal departments were abolished, and their functions returned to the states where they belong. (Education and Public Health as two examples). If we discourage state and local taxation, we discourage (New) Federalism, which is what I thought Republicans were all about.

    If government aid programs are to exist, they should be at the state and local levels as much as possible. Federalism matters.

    2. Lots of Republicans in "red" states pay higher state, local and property taxes too. A "tax cut" that causes the tax bills of millions of individuals to jump up, people who played by the rules as they best understood them, for decades, is political suicide. The people such a gambit hits are those like me who zealously itemize--and we vote Republican.

    Well, we vote for Patriots first, Republicans Second, and yes, lots of political bozos have an (R) after their names, but you get the idea.

    3. As my father has discovered, deducting medical expenses is something that typically does not happen for most taxpayers, but when it does, it does "Bigly", as The Donald would say.

    4. Moreover, isn't this double taxation?

    I know this idea seems like political dynamite to some pundits, but they really need to think it through, please.