MITCHELL: Nearer, my bank, to thee: state and local taxes must remain deductible

U.S. Secretary of the Treasury Steven Mnuchin and Director of the National Economic Council Gary Cohn walk after meeting with Republican law makers about tax reform on Capitol Hill in Washington, U.S., September 12, 2017. REUTERS/Joshua Roberts


Russell Kirk’s eighth conservative principle teaches us that the more local the power and decision-making, the better we are served.  Because tax revenue confers power on the collector, taxation at the local level is much preferred to taxation at the national level.

“For a nation is no stronger than the numerous little communities of which it is composed. A central administration, or a corps of select managers and civil servants, however well-intentioned and well trained, cannot confer justice and prosperity and tranquility upon a mass of men and women deprived of their old responsibilities. That experiment has been made before; and it has been disastrous. It is the performance of our duties in community that teaches us prudence and efficiency and charity.” Russel Kirk, Conservative Principle 8.


While the just-released tax plan put forth by the Trump administration has many good features, the plan’s elimination of deductions for state and local taxes will shift tax revenue from local communities to Washington.

Nondeductible local taxes will make these taxes more painful for the citizen and cause local politicians to reduce services in order to keep local taxes at a minimum. With reduced locally controlled services, the locals will have to prevail upon the federal government to fill the gap.  The feds will be happy to do this because they then get to tighten the reins with all of their one-size-fits-all terms and conditions in exchange for giving your money back to you.

“You need a new fire truck and cannot afford it?  We are only too happy to provide matching funds, but you have to adopt these new personnel policies for your firemen.”

“Need a new school building?  Sure, here is a grant from DC. We’re glad to oblige; and by the way, here is your new history curriculum.”

“Potholes in your street?  No problem – our dough converts readily to asphalt; but your paving contracts have to have to have a few minor new conditions.”

Estimates for the local tax rates as a percentage of income range from 8 percent to 12 percent with the national average being about 10 percent. If you are in the new 25 percent tax bracket, retaining the present deductibility of these taxes would make their effective cost to you of 7.5 percent.  Eliminating the deduction will push the effective rate up to the full 10 percent.  For a couple with a combined taxable income of $80,000, the added 2.5 percent amounts to a $2,000 annual increase for the household that local politicians will try to minimize or hide increased fees. Pressure from voters encourages local pols to cut taxes, delay projects, increase fees, or reduce services.

True, the local cost increase of local taxes may be offset by a federal decrease, but the net effect is to sweep up more money off Main Street and cast it out into the Black Lagoon. The only way to avoid the reallocation is for the local politicians to stand firm and declare that they don’t care that the scheme is costing you more, they are not going to reduce taxes to remediate the effect on your pocketbook. Don’t hold your breath.

Regardless of how one manipulates the math, nondeductible local taxes will translate to less local money and more federal money which, in turn, translates to less local control and more remote control and misery. Kirk would call the plan imprudent, inefficient, and uncharitable.

Baker Mitchell is a businessman and former university professor who lives in Wilmington, N.C.