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Tax “reform” and America’s transfer union

Summary:
America’s state and local tax deduction is as old as the federal income tax. It makes sense in a country founded on the idea of local control and distrust of central authority, but it also tends to reduce the progressivity of the tax code. People with higher incomes and fancier houses pay the most in state and local taxes, and are therefore the biggest direct beneficiaries of the deduction.So it’s not inherently unreasonable to consider reducing the value of this benefit as part of a broader programme of tax reform. As it happens, all the current iterations of the Republican tax plan contain large cuts to the state and local deduction, although it’s fair to wonder whether they are motivated more by the desire for simplification or by the desire to punish people who don’t vote for them.

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Matthew C Klein
I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist. I have worked at the world’s largest hedge fund and read every FOMC transcript since May, 1987

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