Politico: Cloudy Forecast for Tax Law Fixes

DECOUPLING DEDUCTIONS: Two-thirds of states with property tax deductions set a $10,000 ceiling along the lines of the TCJA’s cap on federal deductions for state and local taxes, according to a new report from the Institute on Taxation and Economic Policy, a left-leaning group that considers such deductions regressive. Many states tightly link their tax laws with federal law, and the report, which analyzed state tax changes following the TCJA, also lauded reduced mortgage interest deduction limits in 26 states and Washington, D.C. But it criticized 20 states for following the TCJA in eliminating itemized-deduction caps for high-income earners named for former Rep. Donald Pease (D-Ohio). And all in all, the report painted state itemized deductions in a negative light. It said they make state and local taxes more regressive, worsen racial wealth divides, cut into government coffers and don’t achieve their objectives. “Without question, state itemized deductions are ripe for reform,” research director Carl Davis wrote in a blog post on the report, which recommended outright repeal or less-sweeping refinements if not, such as putting a floor on charitable deductions, getting rid of mortgage interest deductions for second homes or setting a phase-out or other limitation on itemized deductions broadly. Read more

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