Eliminating Federal Deduction to Fund Tax Cuts for the Wealthy and Corporations is a Bad Deal for Maryland

Eliminating the deduction for state and local taxes, as proposed in Republican leaders’ tax plan, would be a bad tradeoff for Marylanders. This deduction allows taxpayers who itemize deductions on their federal income taxes to deduct state and local property taxes, as well as state and local income taxes or general sales taxes.

Not only would 1.4 million Marylanders potentially see higher federal tax bills as a result, eliminating the deduction would make it even harder for Maryland to raise the money needed to support the state services we all rely on. For example, because the deduction is a form of cost sharing between the federal government and the states, eliminating it would likely mean higher borrowing costs for Maryland and other states.

Our state is already expected to face serious budget strains over the next few years. Making it harder to raise adequate revenue for state services could, over time, lead to cuts to widely shared benefits, like schools, roads, parks, libraries, police and fire departments, water treatment plants, and other key services.

At the same time, the state could be trying to cover a greater share of health care, food assistance, and other core services. That’s because the long-term budget plans the president and congressional Republicans have proposed would shift massive new costs to states by sharply cutting funding for Medicaid and other supports for state and local services.

While it is primarily those with higher incomes who are able to claim the state and local tax deduction, the tax plan is eliminating this benefit in order to pay for new tax breaks for millionaires and profitable corporations – not to reduce taxes for working families or make new public investments that benefit everyone.

In addition, Marylanders are much more likely to take advantage of this deduction than people in other states. About 46 percent of Maryland tax returns included this deduction in 2015, compared to the national average of 30 percent, the Department of Legislative Services told members of the General Assembly last week. In total, Marylanders would have paid about $3 billion more in federal income taxes in 2015, had this deduction not been in place – an average of $2,328 per taxpayer, according to DLS estimates.

Policymakers should not eliminate or cap this deduction in coming tax legislation, especially as part of a tax plan that is overall highly tilted to favor the very wealthy few. Eliminating the state and local tax deduction would mean higher taxes for many Marylanders and reduced services for all of us.