Sunday Extra: Federal tax cuts to harm local taxpayers

Sunday Extra: Federal tax cuts to harm local taxpayers


Republicans have long advocated a smaller federal government, with more functions handled by state and local governments. And now their proposed federal tax cuts would place new demands on state and local taxpayers. Consider a few examples.

The $1.5 trillion or more of new federal deficits over 10 years would ultimately force more cuts in federal programs, leaving states to help pick up the slack.

The Senate bill would end the Obamacare individual mandate to buy health insurance — a major step toward ending Obamacare, but with no designated replacement. This would ultimately cause untold millions of people to lose insurance, putting new pressure on state and local governments' health care resources.

The House bill would remove over $65 billion of tax breaks for education over 10 years. This would cause many families to pay higher federal taxes.

And here again, there would be increased demand for states to provide more resources.

These bills would limit or end altogether itemized deductions for state and local taxes. Of course, this would force many taxpayers to pay much higher federal taxes, especially in certain high-tax states. And by restricting those deductions, they would effectively tax at the federal level much of the amounts that would pay for state and local programs. This would make increased state and local taxes even more painful for taxpayers.

Tax reform would also modify the municipal bond rules, increasing financing costs for many state and local governments.

Wealthy individuals and large corporations would benefit greatly from these tax cuts.

But many non-wealthy individuals would experience little or no federal tax savings, and even tax increases. For them, likely program cuts and potential increases in state and local taxes would be a very bad deal.

David J. Roberts is associate professor of accountancy at DePaul University, Chicago.