The deduction lowers individual federal tax liabilities by excluding income taxed by states and localities, a benefit of which 88 percent goes to people with incomes of $100,000 or more. But queasy blue state Republicans want this $1.3 trillion revenue loss over 10 years to subsidize their tax-happy policies at home, threatening a cornerstone Republican campaign promise: reducing burdens on the middle class and job creation.
Rep. Tom MacArthur (R-NJ), formerly a co-chairman of the leftist Republican Tuesday Group, said, “I’m going to fight this [state and local tax deduction repeal] out and hopefully have success in getting it restored.” Members like Rep. MacArthur represent high income, blue state constituencies that overwhelmingly benefit from itemized deductions at the expense of average Americans.
It’s easy to see why blue state Republican lawmakers love this deduction. Blue states overwhelmingly benefit from the state and local tax deduction because they have high state and local taxes. California and New York claim 32.9 percent of all state and local tax deductions while these states only hold rough 18 percent of the country’s population.
Meanwhile, Texas gets bilked while claiming only 3.2 percent of these deductions for 8 percent of the US population. Red states with lower taxes shoulder a distortedly larger federal tax burden because of this deduction. It’s a subsidy for high tax policies. The chart below displays how state and local deduction payoffs expand exponentially for liberal states.