How Trump will test Democrats’ tax patriotism
Democrats have been saying for years that we need tax increases, and that paying taxes is one of the greatest forms of patriotism. Now it seems President Trump is going to put their beliefs to the test.
His tax proposal would hit blue states hardest, by eliminating the federal deductibility of state income and property taxes.
That’s going to make it harder for blue states to maintain the high tax rates they’ve traditionally levied.
Right now, if you pay state property or income taxes, you can deduct them against your federal income taxes.
End the federal deduction, though, and high state taxes come straight out of taxpayers’ pockets with no offset.
As economist Nicole Kaeding told The Hill, by allowing deductions for state taxes, “the federal government is essentially subsidizing high tax rates in states like California and New York.”
States should be able to set their own levels of taxing and spending, but I see no reason why a Walmart cashier in Tennessee (which has no state income tax and low property taxes) should be subsidizing a hedge fund mogul in New York or a studio executive in Hollywood.
It’s fine if blue states want to have higher state and local tax rates, but they shouldn’t be encouraged to do so by federal tax giveaways.
And it’s the urban, coastal areas that have done best over the past 25 years, so it seems time for them to pay their fair share.
In that spirit, I have another proposal: Eliminate the mortgage interest deduction. Experts have been calling for that for years, and they’re right to.
The deduction was part of an ill-considered federal effort to encourage home ownership by people who could only marginally afford it, but that has backfired with the bursting of the housing bubble.
It’s something that has been dubbed (not by me) Reynolds’ Law: “The government decides to try to increase the middle class by subsidizing things that middleclass people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle-class people. But homeownership and college aren’t causes of middle-class status; they’re markers for possessing the kinds of traits — selfdiscipline, the ability to defer gratification, etc. — that let you enter, and stay, in the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them.”
There are a lot of things like this in the tax code: When taxmaking powers are exercised by politicians, taxes are generally written in a way that benefits people politicians care about, who tend to be rich and powerful.
A simpler tax code — such as a flat tax — would fix that, but politicians hate such proposals because they offer insufficient opportunities for graft.
But hey, paying taxes is patriotic. So I don’t expect to hear any complaints from blue-staters. Right?