Oh terrific: House Republicans might kill tax reform to save the state/local tax deduction

Just because something is popular doesn't mean it's good policy. There are few elements of the tax code more popular than the mortgage interest deduction, but it's terrible policy. It's little more than the federal government subsidizing the interest on your mortgage payments, even though the benefits of your mortgage loan go to you and you alone. We'd be much better off repealing the deduction and lowering rates across the board, but politicians are terrified of what homeowners and Realtors will say if they try it, so the deduction lives.

The same is true of the deduction for state and local taxes. This is strictly a sop to states and municipalities who have high local tax rates. It's Washington essentially picking up the tab for the state and local portion of your tax bill, which not only inordinately benefits those in high-tax areas (thus encouraging local politicians to continue levying high tax rates), but also shields taxpayers of the consequences of electing big-taxing local politicians. Cleaning up the tax code would mean we eliminate deductions like these and lower rates for everyone. That way you would all pay the same rate on your federal taxes, regardless of whether you choose to finance a home or don't, and regardless of whether you live in a high-tax state or city or a low-tax one. The Trump tax reform plan regrettably saves the home mortgage deduction, but it does get rid of the deduction for state and local taxes. That's progress. It's worth supporting. But predictably, Republicans in the House are getting nervous about what will happen when favored constituencies find out their break has been taken away. And now some of them are threatening to scuttle tax reform altogether if that's what they have to do to save this goodie:

An aide to Republican Representative Tom Reed of New York said there was discussion of a compromise that would call for a tax credit up to a certain income amount to replace the deduction, and that he would support it.

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Republican Representative Leonard Lance of New Jersey told Reuters he was not interested in a compromise at this time, and instead wanted the repeal provision taken off the table. “I will be voting no on the budget tomorrow,” he said, adding that talks on the issue were expected to go into the evening. Representative Peter King, a Republican from New York, told Bloomberg he believed there were enough lawmakers concerned about the potential repeal of the deduction to sink the budget resolution in the House on Thursday. “This proposal will devastate my district forever,” he told Bloomberg. “How anybody from New York and New Jersey can vote for this budget without knowing what is in the tax bill is beyond me.”

King's quote pretty much gives up the game. New York and New Jersey are very high-tax states, and the only way the politicians in those states can get away with the tax rates they levy is by getting this de facto subsidy from Washington. A taxpayer in Florida or Arizona, neither of which have an income tax, gets little to no benefit out of this special set-aside. The difference is even more pronounced for people who live in big cities that have their own income taxes, as many bigger cities do. If I lived in Detroit I'd be paying 1.5 percent of my income there, and if I worked there (which at one time I did), that would be another 1.5 percent. But I live two miles outside the city limit in Royal Oak, which has no income tax at all. This is not to say the tax code should be tailored to my situation. It shouldn't at all. It's simply that it should be simplified so everyone pays the same low rate based on all their income, and no one gets special breaks for special situations that don't apply to other people. It's no surprise that the Republican congressmen quoted here are from high-tax states. They're protecting what they see as the interests of their constituencies. But as members of Congress often do, they're putting local and parochial concerns ahead of the best interests of the nation, and that's how we end up with a mangled mess of a tax code that makes no sense for anyone.