GOP’s tax plans would hurt Hawaii

Honolulu Star-Advertiser - - VIEWS & VOICES -

The Repub­li­can pro­pos­als for tax re­form are run­ning into head­winds in Congress, which Hawaii res­i­dents may take as a hope­ful sign. But that shouldn’t stop their elected rep­re­sen­ta­tives on Capi­tol Hill, as well as ad­vo­cacy groups, from beat­ing drums, de­mand­ing a re­write of this ill-con­sid­ered leg­is­la­tion.

The ad­vo­cates for the bills that have emerged con­tend that re­vis­ing the tax code is sorely needed to en­cour­age in­vest­ment and eco­nomic growth. But it doesn’t fol­low that ro­bust growth will re­sult from these mea­sures, cer­tainly not enough to com­pen­sate for what they would add to the na­tional debt.

What does seem plain is that the prin­ci­pal ben­e­fi­cia­ries of this ini­tia­tive are the wealthy. Fur­ther, ex­perts have pro­jected that in cer­tain high-cost states such as Hawaii, the mid­dle class will take a real hit.

Pri­mar­ily they cite two fac­tors: a pro­posed re­duc­tion in the de­duc­tion for mort­gage in­ter­est, and the elim­i­na­tion of the de­duc­tion for all or most state and lo­cal taxes. And on Tues­day, the Se­nate lead­er­ship agreed with Pres­i­dent Don­ald Trump to in­clude end­ing the Af­ford­able Care Act in­di­vid­ual man­date, with its tax penalty, as an added el­e­ment of tax re­form. This may make it harder for mod­er­ate Repub­li­cans to sup­port.

In the im­me­di­ate term, it saves some­one without health in­sur­ance from a tax penalty. Those tak­ing the long view, though, fore­see desta­bi­lized in­sur­ance mar­kets, more unin­sured peo­ple and higher pre­mi­ums. This is a bad bar­gain. Still, if the GOP and the ad­min­is­tra­tion are to ful­fill their du­bi­ous shared ob­jec­tives of cut­ting cor­po­rate taxes dra­mat­i­cally and ex­empt­ing more from the es­tate tax, some of that lost rev­enue must be re­couped from some­where. Strate­gies tar­get­ing a broad­based source — such as cap­ping the home­own­ers’ de­duc­tion to mort­gages of $500,000, half of the cur­rent $1 mil­lion max­i­mum — are tempt­ing them. But av­er­age home prices here eas­ily top $700,000, so prospec­tive Hawaii home­own­ers stand to lose a lot. The av­er­age de­duc­tion claimed for Hawaii mort­gage in­ter­est stands at $12,752, ac­cord­ing to The Pew Char­i­ta­ble Trusts — well above the na­tional av­er­age of $8,612. Ex­ist­ing mort­gages would likely be “grand­fa­thered” in. How­ever, not sur­pris­ingly, the real es­tate lobby na­tion­ally is mo­bi­lized to op­pose this pro­vi­sion, as­sert­ing that it would de­press home pur­chases. As for state and lo­cal taxes, the House ver­sion of the leg­is­la­tion would make an al­lowance for prop­erty taxes. In Hawaii, how­ever, this is thin com­fort be­cause rel­a­tively speak­ing, prop­erty taxes are low here. This is largely be­cause un­like other lo­cales, Hawaii’s coun­ties don’t pay for ed­u­ca­tion out of prop­erty tax rev­enue. The av­er­age prop­erty tax claim is $2,290, com­pared to a $4,992 na­tional av­er­age. This is not nearly enough to off­set the sac­ri­fice of the state-and­lo­cal-tax (SALT) de­duc­tion, av­er­ag­ing $9,906.

There are other de­duc­tions that could be lost, in­clud­ing the one for char­i­ta­ble con­tri­bu­tions, and if char­ity is dis­in­cen­tivized by the tax code, non­prof­its of all kinds, such as those that work to help the lower-in­come pop­u­la­tion, will find it harder to main­tain their mis­sion. Univer­sity of Hawaii econ­o­mist Carl Bon­ham told Star-Ad­ver­tiser staff writer Kevin Day­ton that the House pack­age of tax cuts would ini­tially of­fer sav­ings of more than $29,000 for the top 1 per­cent of earn­ers in this state; the mid­dle 20 per­cent of the pop­u­la­tion here would av­er­age cuts of $790 in 2018. And that gap be­tween high- and low-earn­ing tax­pay­ers would only widen in the com­ing years. What’s worse is that con­gres­sional lead­er­ship is rac­ing to ham­mer this through un­der a lu­di­crous end-of-year dead­line. Even good ideas for some­thing as com­plex as the tax code take time to so­lid­ify — and knowl­edge­able ob­servers are hard-pressed to find good ideas in these so-called re­forms.

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