Tax Plan Aims to Slay a Reagan Target: The Government Beast

It was the spring of 1985 when President Ronald Reagan first proposed to put an end to the state and local tax deduction. The idea was, to be sure, politically tricky. The provision had been around since the creation of the federal income tax in 1913, the budgetary expression of America’s celebrated federalism. As Justice Louis Brandeis might have put it, it was the federal government’s way to help pay for policy experimentation in the nation’s “laboratories of democracy.”

And yet to a Republican Party embroiled in a fundamental debate on how to shrink the government, it was an idea hard to resist: a direct shot at states’ capacity to spend. Bruce Bartlett, then a conservative tax expert who would go on to serve under Reagan and his successor, George Bush, estimated that without federal deductibility, state and local spending would fall 14 percent.

Nixing deductibility “threatens the political livelihood of spendthrift lawmakers across the nation,” Mr. Bartlett exulted at the time in an article for the Heritage Foundation. And it “would become more difficult for states to finance programs of doubtful benefit to their taxpayers by ‘hiding’ the full cost within the federal tax system.”

Reagan ultimately failed to kill the deduction. Mr. Bartlett, who often contributes to The New York Times, has come full circle to reject the Republican project to shrink the government at all costs. Still, his words from over 30 years ago provide an apt description of what drives Republican thinking in Congress today.