There has been a lot of commentary going around in the political world about Trump's proposed tax reforms. Love them or hate them, there is a real opportunity here to change the way the U.S. taxes its citizens – which, let's be honest, is a hot mess no matter what angle you're looking from.
Officials in my state – New York – have been complaining about the tax reform proposals overall (though, whether it's because they dislike the proposed reforms or because they simply dislike Trump is anyone's guess). However, there's one particular part of the proposal that is getting a lot of attention right now: the removal of the state and local tax deduction.
Argument FOR Removing State and Local Tax Deductions
The most coherent formulation of the reasoning behind removing state and local tax deductions (sometimes called SALT deductions) comes from Treasury Secretary Steven Mnuchin. In a recent interview with CNBC, Mnuchin claimed that removing the tax deduction for state and local taxes remains is critical for the overall tax reform plan because it amounts to a subsidy for states. In effect, he said, the deduction is "a major loophole that we're trying to close in simplifying taxes."
However, it seems like there's a less touted secondary reason for removing SALT deductions: High-income tax states tend to also be blue states. By removing SALT deductions for states like New York, New Jersey and California, the Trump administration is basically punishing those who voted against him. While the double tax on income would become the law of the land in every state, most of the red states have low or no income taxes, meaning that those who voted FOR Trump would be much less affected.
Looking at it from this secondary reasoning is necessary to understand why the administration is making this proposal because their state reasoning – that the SALT deductions make the tax code too complex and that they subsidize the states – makes no sense. States are still going to get the same amount of income tax from their citizens as always, but now those same citizens are going to be double taxed on that same income at a federal level as well. Trump isn't punishing the states; he's punishing the individual people in those states.
Which is really short-sighted on Trump's part, because even though states like New York and New Jersey voted largely for Trump's presidential campaign, there are many congressional districts in those states which have voted for Republican congressional representatives. The district where I live in Central New York is one of those, with John Katko's having been heavily contested both times he was elected to his seat. A move like this could really endanger him and other Republican representatives who won by narrow margins in this largely Democratic state.
Double Taxation Is Wrong
Besides the stated reasoning and the political machinations, it's simply wrong to double tax someone. There is no reason why I should have to pay twice for the same money earned, once to the federal government and once to the state government. (Or three times even, for those who live or work in a municipality that also has an income tax, such as New York City and Yonkers.) It's bad enough that I already live in a high-income tax state – don't make it worse by forcing me to pay taxes on that same portion of money to the federal government as well.
Of course, this whole thing is even more poignant considering that I am now earning income on Steemit. With the rules about how to tax cryptocurrency so up in the air, I don't even know at this point how to handle the fact that I might be getting double taxed on my posts here. It just seems so wrong and stupid overall.
In all, I'm in favor of the idea of tax reform, even if I have a problem with some of Trump's proposals, like the removal of the SALT deductions. But we need to be smart about them and make sure that hardworking people who have moderate incomes are not going to be worse off afterward. And let's not punish those who are engaging in entrepreneurial endeavors and new technologies like Steem and other blockchain projects. That just seems petty and short-sighted.
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