The latest Republican efforts to reform the cumbersome and overly complicated federal tax code — which has been untouched since President Ronald Reagan’s successful 1986 tax overhaul — are welcome but must be fully evaluated to make sure all hardworking Americans benefit from the fruits of a fairer and simpler tax system.
Tax reform is a critical step in strengthening the U.S. economy and promoting a more robust free market. As the new tax reform bill has dominated headlines all week, the true impacts of the bill are still being debated.
One thing, however, is certain: the current bill as proposed today will impose a double tax on over 44 million Americans across the country — and particularly on Virginians. It is the state and local tax deduction (SALT) and should it remain in the U.S. Senate version of the tax reform bill and make its way out of conference, the impact would be devastating on local real estate property taxes across Virginia as localities inevitably make up the federal revenue shortfall on the backs of working families.
Even with other tax changes that the bill proposes, such as raising the standard deduction, middle-class suburban homeowners will see their taxes go up – in some cases by thousands of dollars. Making matters worse, large entities like multi-national corporations still get to keep the SALT deduction, while millions of other Americans — and Virginians — will be forced to pay more.
In Northern Virginia, many suburban homeowners benefit from the SALT deduction. For example, in Northern Virginia, 49 percent of taxpayers filed for the SALT deduction, on average saving $13,000 a year. If the Brady tax bill is passed in its current form, these homeowners could see increases of more than $2,300 a year.
This is not just an imposition on homeowners and the middle-class, but also on local governments across the country. The revenue generated from the SALT deduction is key to local municipalities’ and states’ budgets. When this local money no longer available, it presents a clear threat to public services, such as funding for police, firefighters, infrastructure, and education.
According to one study, cutting SALT could result in the loss of more than 9,000 educator jobs in the Commonwealth of Virginia and threaten roughly $8 billion in funding for public education over ten years. If Washington takes away this important state and local revenue stream, which has been part of the country’s fiscal federalism for over a century, states and localities will surrender the ability to make those financial decisions to the federal government.
SALT was one of the original six deductions in the 1913 income tax amendment, and has always been a key principle of the U.S. tax code to prevent double taxation on American citizens. For over 100 years, millions of taxpayers have benefited from this provision, and eliminating it would only take money out of Americans’ pockets for Washington’s wasteful, big government spending.
Under this tax proposal, there will simply be no way to reduce the country’s ballooning debt and deficits, nor is it clear how Congress plans to prevent the huge tax increases –- and double taxation –- on tens of millions of Americans that would inevitably occur under the current proposal. Simply put, this provision unnecessarily shifts the tax burden away from the federal government and onto local governments ill-equipped to distribute the load.
There is much to praise in this first round of federal tax reform, and Republicans have a moral duty to paint in broad strokes while we have majorities in Congress. Yet SALT should be seriously reconsidered, not as a punitive tax against New England liberals, but as a punishing and unfair tax on large landowners and middle class suburban families throughout Virginia. 