THE EDITORS, April 17, 2012, National Review
The good news for wary conservatives is that Mitt Romney has finally gotten specific about his plans for reforming the tax code and shrinking the federal government. The bad news is that he did so at a private gathering of donors, and for purposes of analysis we have only what reporters lurking outside the event overheard. But with that caveat, we can report that much of what Romney proposes is constructive.
Romney has long promised a revenue-neutral simplification of the tax code that would couple a 20 percent across-the-board rate cut with the elimination of certain deductions. In his off-mic comments he named names, singling out federal deductions for state and local taxes, and for mortgage interest on second homes, as potential offsets. Both changes would be welcome.
President Reagan saw the elimination of the deduction for local taxes as a “nonnegotiable” piece of his own 1986 tax-reform plan, but his efforts were ultimately beaten back by representatives of high-tax states in Congress. This is because the deduction functions in practice as a subsidy to high-tax jurisdictions from low-tax ones. Its elimination would put locales in clearer fiscal competition with one another for the most tax-sensitive residents, who would in turn feel the full effect of differing tax rates instead of having their impact blunted considerably by the federal government.