The total elimination of the deductibility of state and local taxes in the Senate Republican tax plan will cost me money, as I live in the high tax state of Illinois. Nevertheless, I strongly favor this proposal. It is rare that a change in tax law can reinforce the basic structure of our Constitution, but this one does.
Our Constitution is premised on government accountability and our federalism on competition among the states. Deductibility of state and local taxes undermines both. Because the deduction tempers the full force of the tax burden that states and localities impose, the accountability of state and local legislators for tax and spending becomes more attenuated. And this lack of responsibility is not ideologically neutral: state officials tax and spend more taxpayers’ money than they would if they could not slough off some of the costs on people who cannot vote them out of office.
Second, federalism is supposed to encourage competition among the states for efficient provision of public goods. But this deduction reduces the keenness of the competition.