President Donald Trump’s tax plan overhaul disproportionately targets people who live in blue states throughout the USA.
The Federal income tax first debuted in 1913 and ince that time, taxpayers have been allowed to deduct their state and local taxes from their federally taxable income. The benefit of the deductions was most felt by taxpayers living in states with a higher tax rate.
Deductions currently cost the federal government more than $60 billion per year according to the nonpartisan Tax Policy Center.
Trump’s plan calls for an end to state and local tax deductions. Experts were quick to note that it would mostly be taxpayers in higher earning blue states who would be hurt by the removal of that deduction.
Progressively taxed states such as California, New York, Oregon and New Jersey, would be hit the hardest by the tax code change.
In the short term, taxpayers would report a higher income for their federal taxes. That would mean state tax bases would grow slightly. The plan would help policymakers in states going through tough financial times but would hurt the average taxpayer in blue states.
States most affected by the cuts are likely to cut taxes to come in line with new federal code, as they did during a change to the federal tax code in 1986. New York and Minnesota ended up eliminated some of their tax brackets after the tax code changed in 1986.
Unfortunately, most states have already written and published their 2017 tax codes so most Americans in blue states would suffer immediately.
The tax code would especially heart people earning between $50,000 and $100,000 annually. Those individuals typically itemize their tax return and would lose about 6.5% of their adjusted gross income.
Trump also plans to eliminate the estate tax for the wealthy. His plan would greatly affect budgets put into place by fourteen states and the District of Columbia. It would, however, help his wealthy friends in the event of a death.
On top of raising taxes for people living in blue states, Trump is considering reducing pass-through taxes for businesses which would reduce taxes being collected by predominantly blue states.
Experts warn that short-term gains could collide with the federal government’s attempts to cut funding to various social programs which could fall on state governments to support.
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James Kosur is the former Editor-In-Chief and co-founder of Hill Reporter. He recently served as an editor for Business Insider and various other publications. James and his partners sold Hill Reporter to a new owner in July 2019.