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Richard Rider

The single best “payback” policy Trump should adopt — end the deduction for state taxes on federal tax returns

As my regular readers know, I was NOT a Trump fan during the election.  I voted for Gary Johnson, and had nothing but unkind words for The Donald.

But since the election, Trump has been making many smart decisions (“smart” is defined here as agreeing with me).  I still have BIG reservations about a couple of his policies — notably his desire to start another trade war. Other than trade, most of his domestic policy positions AND most of his nominees for the cabinet have been first rate.

In contrast to my guardedly supportive conversion to Trump’s election, the left has gone bonkers in what can only be described as an orchestrated campaign of hate and disruption.  They’ve raised (or perhaps lowered) the bar for the “sore loser” designation.

School kids’ are used as pawns by the education establishment — encouraging their charges to run free to protest Trump’s election, at considerable taxpayer cost (paying for education that is not being provided).  Democrat luminaries and “artists” are encouraging street demonstrations against Trump’s election — when he won fair and square.  A bug-eyed college professor chases Trump’s daughter AND her kids down an airplane aisle, berating her for choosing to fly on an airline, and the left quietly condones such behavior.  States and cities are gearing up (again at taxpayer expense) for civil disobedience against Trump when controversial policies haven’t even been proposed.

Our country is divided.  Well, that’s always been the case.  But from a geographic standpoint, it’s becoming a particularly stark division.  Oversimplifying, it’s the liberal northeast and west coast states vs. the huge “fly over” expanse that lies between the two coasts.

The Left has made clear that it will take no prisoners.  No compromise will be considered BY progressives. Only compromise WITH progressives is acceptable.  Personal attacks on Trump and his family will continue, with the encouragement of Democrat leaders.

If I were Trump, I’d recognize that negotiating and working with liberals is not going to bear fruit — especially when they have nothing to lose from such obstruction and disruption.  After all that liberal abuse, it’s time for President Trump to deal out a little payback.  Actually, a LOT of payback.

There are many payback options available to the Trump administration, but I have a favorite:  Lower federal income tax rates IN EXCHANGE FOR the ELIMINATION of the deductibility of state and local taxes.  End the deduction for state income taxes, property taxes and sales taxes.  Make states face the full cost of their governmental operations.

It’s a YUGE, BEAUTIFUL option for Trump.  Almost without exception, all the high tax states voted for Hillary — these liberal bastions house most of the antagonistic progressives.  Low tax states will be far less impacted by this change — and most of them voted for Trump.  Indeed, low tax states stand to gain from the increased competitive advantage they would offer the wealthy and businesses ensconced in the current high tax states.

This is an idea that has been proposed in the tax reforms Trump is considering.  It makes good economic sense.  I emphasize that this should be a REVENUE NEUTRAL reform — reducing federal tax rates to offset the higher taxable income faced by taxpayers.  But while NATIONALLY revenue neutral, it was be a net PROFIT for low tax states and a net COST to the high tax states — and their citizens.

I say this, knowing full well that my wife and I will be adversely affected by such a reform.  We have a six figure California taxable income, and occasionally it gets into the upper six figure level if a big capital gain comes in. We would lose from this change, if implemented.  So be it, Jedi.

Moreover, it’s sound economic policy. The current deduction encourages spendthrift policies in these liberal states.  Currently people paying the top 13.3% CA income tax rate take solace from the fact that they can deduct such taxes on their federal returns — sometimes lowering the NET cost of this income tax to under 10%.

This federal subsidy to high tax states must end.  We need to encourage better decision making by politicians and liberal electorates. Facing the full consequences of such high taxes will a sobering effect on not only the wealthy, but also homeowners.  Currently the median CA homeowner property tax BILL is 93% higher than that of the other 49 states.

I suspect the Congress will pass such a reform — perhaps as part of a larger tax reform plan.  If it can make it past the Senate filibuster, it would become law, and I see no serious constitutional challenge to such a reform.

The best part of this option is that Trump can do this without admitting it’s payback. It’s just sound economic reform. But it would be devastating to the money-grabbing states.  It would effectively be a 60+% increase in the cost of state taxes for the well-to-do (again, offset overall by lower federal tax rates).

A SIMPLIFIED EXAMPLE:  Currently paying $100 of state tax saves the wealthy about $40 in federal taxes.  They pay a net $60.  If they can’t deduct that “expense,” they will pay the full $100 out of pocket.  That’s a 66.67% net increase in cost to such a taxpayer.  I can LITERALLY live with that — again, emphasizing cuts in the federal income tax rate.

But this change sure will be a big incentive for my family to finally abandon the “Golden State” — depriving CA governments of our future financial support.  I doubt our state and local governments would reform, but you never know.  Well, actually we DO know, don’t we?

Anyone have the phone number for Mayflower?