Municipal Leaders Oppose Limits on
Deductibility of Taxes; 34 Officials Sign Letter
Condemning "Federal Penalty Tax" Idea

Municipal government leaders from 34 states have sent a joint letter to President Bush and congressional leaders in opposition to the idea of limiting the deductibility of state and local taxes as part of a plan to reduce the federal budget deficit.

"The federal tax deduction for state and local taxes is simply a recognition that our citizens cannot pay taxes with monies that have already gone to Other levels of government. To eliminate this deduction would result in a double tax on our citizens," said the letter signed by leaders of state municipal associations throughout the United States.

Their appeal to the deficit negotiators in Washington echoes a stand taken by the National League of Cities and adopted unanimously by the NLC Board of Directors at its recent meeting. The state municipal associations are members of NLC and include virtually all of the nation's cities and towns in their membership.

The letter points out that responsibility for many programs has been shifted from Washington onto state and local governments over the past decade, and a move to limit deductibility would "erode the tax base on which we rely to fund essential programs in housing, education, infrastructure and all other vital government areas,"

The leaders called the idea "a federal penalty tax for having made the tough political decisions to fund these services."

NLC's leaders endorsed a five-year, $600 billion plan on deficit reduction and spending priorities which included a number of options for broad-based revenue increases, and the state municipal leaders said in their letter that "tax increases must be part of any serious, comprehensive effort."

Like NLC, however, they said a limitation of deductibility "would violate the principle of federal-state equity and intergovernmental cooperation."

Signing the letter were leaders of state municipal associations in:

Alabama	Louisiana	North Dakota
Alaska	Maine	Ohio
California	Massachusetts	Oklahoma
Colorado	Michigan	Oregon
Connecticut	Minnesota	Pennsylvania
Florida	Mississippi	Tennessee
Georgia	Missouri	Texas
Illinois	Nevada	Vermont
Indiana	New Jersey	Virginia
Iowa	New Mexico	Washington
Kentucky	New York	Wisconsin
	North Carolina

The President's negotiators and congressional leaders are to resume work an a deficit reduction strategy after Labor Day.

Text of the joint letter

"We are writing to express our concern about any limitation in the deductibility for payments of state and local taxes in the budget summit negotiations.

September 1990 / Illinois Municipal Review / Page 23

"While we strongly support federal efforts to reduce the federal deficit and recognize that tax increases must be a part of any serious, comprehensive effort, we believe any such limitations would violate the principle of federal-state equity and intergovernmental cooperation.

"The suggestion that this deduction should be limited fails to recognize the value of state and local services and will unfairly affect state and municipal revenues. The federal tax deduction for state and local taxes is simply a recognition that our citizens cannot pay federal taxes with monies that have already gone to other levels of government. To eliminate this deduction would result in a double tax on our citizens.

"We are deeply troubled that after shifting responsibility for so many programs from the federal to state and local governments, some of the participants in the budget summit are now proposing to erode the tax base on which we rely to fund essential programs in housing, education, infrastructure and all other vital government areas.

"Over the past decade, we at the state and local level have repeatedly been told by the federal government that these programs are a state and local responsibility and that we should raise the revenue to pay for these essential governmental services. Now it is suggested that our citizens should pay a federal penalty tax for having made the tough decisions to fund these services.

"A majority of the nation's cities and towns confront local recessions. The most recent fiscal survey by the National League of Cities completed last month indicates that more than two-thirds of our communities face the task of cutting spending and raising revenues. We are apprehensive at any federal decision which would interfere with those efforts and responsibilities.

"We understand the difficult choices which you must make. However, we remain opposed to any proposal which will levy a double tax on the citizens of states which have fulfilled their responsibilities over the past decade by raising revenue at the state and local level to fund public facilities and services for nearly 80 percent of the American people." •

News items and photographs of interest indicating new developments and progress in your municipality are always of interest to our readers. You are urged to send such information to the ILLINOIS MUNICIPAL REVIEW for publication. Be sure your information is complete. All photographs should be black and white glossy prints. — Editor

Page 24 / Illinois Municipal Review / September 1990