Tax Foundation Testifies on State and Local Government Tax Provisions

March 19, 2013

Eliminating Deductions Would Lead to Higher Growth

Washington, D.C., March 19, 2013—Tax Foundation president Scott Hodge will testify today before the Ways and Means Committee of the U.S. House of Representatives on tax reform and tax provisions affecting state and local governments.

Currently, there are more than 170 different tax expenditure programs in the federal tax code, which have a total budgetary cost exceeding $1 trillion. Hodge will emphasize that while not every tax expenditure is a “loophole,” there are dozens of tax provisions that produce harmful side effects that outweigh whatever public policy reason motivated their creation.

Under consideration by the Ways and Means Committee today will be provisions affecting state and local governments, specifically the “taxes-paid” deduction and the municipal bond exemption. Tax Foundation research has found that allowing individuals to deduct income taxes paid to state and local governments and interest earned from municipal bonds leads to higher spending by state and local governments, and higher level of public debt.

Hodge’s testimony will lay out the economic evidence that these provisions produce more harmful effects than benefits, including that they encourage higher taxes, higher spending, and more debt by state and local governments. Tax Foundation simulations have shown that eliminating these provisions while lowering tax rates would lead to higher GDP, higher private investment, higher wages, and better living standards for all Americans.

The full text of Scott Hodge’s testimony is available here.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

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