A bad deal for Californians

The infighting between President Trump and Republican legislators in Washington may be fierce, but there’s one subject on which they’re in lockstep: America needs a tax cut. House Republicans narrowly approved a budget plan Thursday and pledged to sprint forward on a landmark tax overhaul to cut government revenues by $1.5 trillion over the next decade.

However, just because there’s Republican agreement on the need for a tax cut doesn’t mean this overhaul will pass. The current details of the overhaul involve significant changes to the individual tax code that would impact every American — and have a particularly detrimental effect on Californians.

That’s because the GOP tax plan seeks to lower rates on corporations, certain partnerships, and overseas profits by getting rid of a provision that allows individual filers to deduct state and local taxes from their income for federal tax purposes.

The provision is particularly prized by the residents of high-tax states such as California and New York, which coincidentally, tend to vote for Democratic legislators.

In another huge change, congressional tax writers are considering sharply lowering the cap for individual pretax contributions to 401(k) savings plans.

The current savings limit for 401(k) plans is $18,000 ($24,000 a year for those over 50). Republicans are reportedly considering limiting pretax contributions to a mere $2,400 per year.

Because these tax-balancing maneuvers are heavily weighted toward blue states, they look like partisan choices, not policy ones. But these choices are more than just unfair and outrageous. They’re also poor public policy.

The 401(k) was always a conservative solution to a social problem: Older people without nest eggs are impoverished people.

At one time, businesses and companies rewarded their employees for years of dedication with pensions — but as work trends changed and pensions eroded, Americans still needed to plan for their retirements. The 401(k) gave them a tax incentive to save for their own futures.

It’s highly unlikely that cutting business taxes will persuade employers to restore pensions to their employees. So discouraging Americans from saving their own money is irresponsible and antithetical to the value of personal responsibility Republican legislators say they believe in.

As for the individual state and local tax deduction, reversing it could have detrimental impacts on certain forms of personal consumption in the country’s higher-tax states, particularly big-ticket items such as cars and houses. If the purpose of tax reform is to help the economy, this isn’t the way to do it.

It’s an open question as to whether America even needs a tax cut right now — unemployment is low and economic growth is already happening.

But if the only point of agreement in Washington is about cutting taxes, it needs to be done in a way that offers relief to regular Americans. This plan would do the opposite.