Republicans eager to put the health care debacle behind them are looking forward to one of their signature strengths: tax reform. Trump has actually done some of the homework here, having unveiled a tax plan back in April.
In it, he targeted a longstanding provision in the federal code: the deduction for state and local taxes, otherwise known as SALT. At first glance, this looks like an idea that Republicans can rally around. Repealing the deduction would disproportionately hurt so-called “blue states” who vote Democratic and thrill leading fiscal conservatives who have also floated the idea: Kevin Brady, the powerful chair of the House Ways and Means Committee, and House Speaker Paul Ryan, who made the rollback a central piece of his own tax plan.
But history suggests they’ll face opponents on all sides. In fact, the last time a Republican president tried to slaughter this particular sacred cow – forged, it seems, in 1861 — he faced a mutiny across the political spectrum.
While Congress spent more than a century nibbling at the deduction , no one seriously thought about abolishing it until Ronald Reagan became president. In a State of the Union address in 1984, Reagan launched his crusade, declaring that he wished to reform the tax code with an eye toward “fairness, simplicity and incentives for growth.”
According to one account of this effort, Reagan directed the Treasury Department to come up with a blueprint for reform. They delivered their report to the president the following November, as he handily won his reelection campaign. In it, the still-relevant arguments against the deduction were summarized: that it effectively subsidized high-tax states at the expense of low-tax states, and that the subsidy overwhelmingly benefited “high-income individuals and high-income communities. The Treasury report also pointed out that savings from removing the deduction would help offset all the other tax cuts Reagan wanted.
The initial response was muted, with one notable exception: New York. Though taxpayers in any high-tax state depended heavily on the deduction, New York was at the very top of the list. On average, a taxpayer in New York state who itemized their return saved $1,292 per year because of the deduction that Reagan wanted to eliminate; by contrast, residents in a low-tax state such as Wyoming only received an average of $257.
New York’s political leaders understood the peril the new plan posed, and even if they didn’t, Treasury Secretary Donald Regan made clear the stakes of the coming battle in December 1984. “My heart will not break,” he said in an interview, “if New Yorkers lose the right to deduct billions in state and local taxes from their taxable incomes.”
Well. New York’s political community may have been hopelessly divided on every other issue, but here was a rare opportunity for bipartisanship. Almost overnight, top Democrats Mario Cuomo (governor), Daniel Patrick Moynihan (U.S. senator) and Ed Koch (New York City’s mayor) had joined forces with top Republicans Al D’Amato (U.S. senator) and Warren Anderson (majority leader of the state Senate).