State/Local Deductibility Among Tricky Issues in Federal Tax Reform Debate

Talks of renewed efforts to “jumpstart” proposed federal tax reforms have emerged from Washington, with House Speaker Paul Ryan encouraging efforts to develop a plan for House passage — likely as a part of budget reconciliation, meaning a lower vote threshold needed in the Senate.

From coverage in the Wall Street Journal, a political consensus – even among the majority Republicans – has been elusive in part due to the tentative proposal to eliminate tax deductibility of state and local taxes on federal returns. From the Journal coverage:

• Intra-Republican disputes threaten the GOP effort with every trade-off. Just this week, seven House Republicans from New York and New Jersey signed a letter asking the administration—and by extension, the speaker—to reconsider a plan to repeal the deduction for state and local taxes.

• To even get to tax policy, Republicans will have to pass a budget that allows them to use reconciliation, the procedural tool that enables a simple majority vote in the Senate. That will require bridging gaps between Republicans who emphasize spending cuts and those who want to spend more on the military.

For more on the state and local tax deduction, see NACo’s release: State, Local Governments Urge Congress to Preserve State and Local Tax Deduction and Tax-Exempt Municipal Bonds in Tax Reform Efforts

Michael Sanderson

Executive Director Maryland Association of Counties