


President Reagan proposed ending the deduction for state and local taxes, which he described as a subsidy by low-tax states to high-tax ones. But the idea failed in Congress. It took more than three decades for the deduction to be capped, in a tax-reform law signed by President Trump.
Why did Reagan fail on this issue while Trump succeeded? For one thing, Reagan was dealing with a Democratic House while Trump had a Republican one.
I strongly suspect two other changes played a big role. One was the emergence of a strong partisan division between the high-tax and low-tax states. (By 2017, ten states accounted for more than half of the money deducted in state and local taxes; nine were firmly Democratic.) There were more Republicans from high-tax northeastern states in the 1980s than there were in 2017. Another: Expectations of party-line voting also increased. Reagan therefore had more potential Republican defectors.
A case in point: One of the leading opponents of Reagan’s plan was a Republican senator from New York, Al D’Amato — who has ended up being the last Republican senator elected by the state since 1974.
The fact that we now have a sharp split between red and blue states, and that this coincides with the high-tax/low-tax split, could change the prospects for other policies too — such as Medicaid.
Reagan also proposed a “federalism swap” that would clarify which programs the federal government would run and which the states would: a swap that included full federal responsibility over Medicaid. He didn’t get anywhere with that one, either.
But Medicaid as currently configured gives disproportionate funding to blue states, as I explain in a Washington Post op-ed today. Once Republicans realize that, maybe Reagan’s idea, or a version of it, could make its slow way into law as well.