The biggest news from President Trump's tax proposal is the plan to eliminate the federal deduction for state income taxes. This would mean that you wouldn't get to subtract your state income tax from your income when calculating your federal income tax, and it would have the greatest effect on residents of high-tax states.
To offset the loss of revenue from lower tax rates and other changes, Cohn and Mnuchin said they were proposing to eliminate virtually all tax deductions that Americans claim, provisions that they argued primarily benefited wealthier Americans. Cohn said they would preserve tax breaks for mortgage interest, retirement savings and charitable giving. But almost all others would be jettisoned.This includes the tax deduction people can claim for the state and local taxes they pay each calendar year, a provision that saves taxpayers more than $1 trillion every 10 years. These taxes can be particularly high in states with higher income taxes, such as California and New York, so the change could be acutely felt there.
"It's not the federal government's job to be subsidizing the states," Mnuchin told reporters at the briefing with Cohn.
Cohn is right: the deduction is a subsidy for state governments... a subsidy that benefits high-tax states that primarily vote for Democrats. On principle I'm in favor of eliminating most deductions, and I'm sure it's no coincidence that Trump's political adversaries will be hardest hit.
