December 20, 2017
The Republicans in Congress and Donald Trump were really hoping to sock it to the blue states like California and New York, which voted against him by large margins. This is what limiting the deduction for state and local income and property taxes is all about. These states also have relatively high taxes because they try to do things like provide people with decent health care and education.
However, it is not difficult to design a way around the Trump scam. States can impose state-level, employer-side payroll taxes. For the most part, these taxes would be deducted from workers’ pay (e.g. if an employer has to pay a 5 percent payroll tax, she will likely reduce her workers’ pay by 5 percent), but this has the great advantage that workers will not be taxed on money that they don’t see.
If the income tax is reduced by the same amount as the payroll tax, the state gets the same amount of money, the worker ends up in the same place and the Republicans don’t get to screw the blue states. Oh yeah, the federal government ends up with less revenue, but that will be happening anyhow as the accountants and tax lawyers get to their games.
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