Posted on 11/28/2017 9:39:50 PM PST by Oshkalaboomboom
If you have ever wondered why leaders of liberal cities and states become giddy at any new spending opportunity – investments into light rail infrastructure, social programs for illegal aliens, public schools that look like palaces, billion-dollar sports stadiums – it is not because they are more public-minded than Republicans, or possess an innate sense of altruism. It is because such projects get them re-elected, especially when people other than their constituents are picking up the tab. And, thanks largely to the State and Local Tax (SALT) Deduction for federal income tax purposes, that is exactly what is happening.
In the current federal tax code, SALT deductions allow individuals to deduct state and local taxes, including property taxes, from their federal returns. On the surface, this seems like a great idea, as it generally reduces tax burdens, especially for those living in high-tax localities. At its core, however, the deduction is more a clever burden-shifting scheme to make it easier for state and local governments to over-spend, than it is a way to ease the burden on federal taxpayers.
Since state and local taxes can be deducted, the tax burden is shifted from those governments to the federal government, which in turn makes up for this lost revenue by keeping taxes higher on the rest of the country. In effect, taxpayers in low-tax states and cities, like those in the South, are forced to subsidize the lavish public spending of liberals in New York, New Jersey, Connecticut, and California, who have little incentive to reduce the local taxes that fund their pet projects. It is much like making charitable donations online using someone else’s credit card. It does not make you Robin Hood. It makes you a charlatan, which is why rather than pay the bill, the millionaires who helped put these Democrats in power, would rather flee like cowards.
It also makes for a very sticky wicket when it comes to the GOP’s current tax reform proposals, which hinge on finding ways to help offset the “costs” of reducing federal taxes. Eliminating SALT deductions would make a sizeable dent in this gap; potentially $1 trillion in revenue over 10 years. Yet, the objections of Democrats, and even some Republicans from the states most impacted, threaten to derail the entire process because of the political ramifications of exposing taxpayers, for the first time, to the true costs of their elected officials’ fiscal irresponsibility at the local level.
This also illustrates a perennial problem with every modern tax cut bill. Our massive and long-standing tax system is built almost entirely around political favors and deductions. Until we have a complete overhaul of the entire tax system, it will remain extremely difficult, if not next to impossible, to do completely away with any deduction of any meaningful significance, because someone’s prized ox is bound to be gored with every move to drop or scale back a deduction; or just as likely, a new one is added in its place as Congress negotiates with the hold-outs.
In an ideal scenario, Republicans would remember what it is to have a spine, and perhaps we might see real reform, such as a flat tax, where the only debate would be what the new tax rate should be, what should be the annual standard deduction that replaces every other deduction promised over the years as a political handout; and bring spending down to the level necessary to operate within the monies raised by the flat tax.
Of course, even in the ideal scenario, spending at all levels of government remains the central problem. Out-of-control spending at the local level is what causes higher taxes that makes eliminating SALT deductions so controversial. Out-of-control spending at the federal level is why Republicans are struggling to pay for tax reform by only eliminating deductions. And, without a plan for cutting spending – a long-forgotten ideal even of many self-styled congressional “conservatives” – the tax rates proposed in this tax reform are the best we can hope for, as either automatic trigger increases kick in 10 years down the road or the inevitable deficit catastrophe forces rates back up.
And, were this to happen, the GOP would rightfully deserve the fallout for its refusal to address spending. Notwithstanding this dilemma, tax reform is so badly overdue that even without spending cuts in place yet to offset the deficit, it is a worthwhile first step. But, it cannot be the last step either. Until the GOP gets serious about cutting spending, shirking this responsibility in the short term will have even greater consequences in the long-term – unfortunately a perspective not often exhibited in Washington.
My family would save over 25% on federal taxes with the two calculators I used.
It appears a large number of two income families up to and over $160,000 would do likewise.
I’m in CA and stuck with high SALT.
But how easy is that? It's like shooting fish in a barrel. Everyone, even liberals (although they won't admit it), want their taxes lowered.
A truly great politician is one who can regularly balance budgets... especially if those budgets are flat or trending downward. Now that's a difficult feat worthy of true praise and support.
We looked a retiring to Florida because it is a "low tax state" and the property taxes were so outrageous we quickly discarded the idea. My first wife was a very good accountant and she told me good accountants retire to Alabama. I don't know if that's changed over the years but it's something to investigate if you find yourself wanting to relocate.
Some here at FR think that the rest of the country somehow needs to protect them from living in a dem run state
Hope your flame suit is on
There are other places to live
California wasn’t always a high tax state
I’m in CA and stuck with high SALT.
This idea for reforming the tax code is freaking brilliant.
Effective subsidization of state and local taxes really, really, in my view skews the whole relationship between the states and the federal government.
Can’t understand why the real conservatives don’t understand this.
Just remember that we the opressed in Dem high tax states voted for #MAGA for relief. If we are taxed even higher...do not expect a good result!
Just cut to the chase and reduce taxes for ALL! They have created a Solomon split the baby situation... a false dichotomy to subterfuge tax reform and true tax cuts. This is the RINO aholes fast at work to block any and all change.
I think most do, but unfortunately they are quick to jettison their “principles” the moment they become personally inconvenient. That type of behavior is precisely why the country has been on such a long-term downward slide. Everyone talks a good game, but when the chips are down there’s little to no real commitment.
... and there it is. It depends on whose ox in being gored.
Oh, and in before Mariner.
How does a state that receives more from the government than their tax payers pay, subsidize a state whose tax payers pay more than their state receives?
This is an instructive article. These states that have this bogus deduction, are getting away with spending other peoples money.
ping
If they cut spending to any useful extent first, consumer spending, markets, jobs, then revenues will go down. They don’t want to start a vicious cycle.
So they want to cut taxes and take other measures to rev up the economy a little more, then cut spending. Then, they can safely raise interest rates. Otherwise, with the increasing pile of debt, bonds will get even more risky (also a way to start a vicious cycle).
Remember that the Fed raised the rate a few months ago, and the dollar started to fall instead of going up again. That was a warning sign that the previous paradigm was about to fail in a big way.
many of us are in our forever homes, and have lived many years in one house, but now, I can just forget about deducting the property tax because its a "states right" issue?...
so now I get to get taxed on a tax?....
and now we need to trust the govt not to hike the tax rates to increase revenue in a year or two?...
if they steal our deductions, they are never ever coming back....
The one thing you fail to mention about this passing the costs farce is those very same people from those states such as California, New York, New Jersey also shelter the largest tax burdens at THE FEDERAL level. So using your argument of “supplementing” which is liberal code word for it is the government’s money then these very same states are supplementing the rest of the country anyway by paying the majority of federal taxes.
The tax plan is simply garbage, period end of story
This is a good argument, but it’s still going to be painful to have to bear that burden.
That is a fallacy which has been debunked.
https://thefederalist.com/2017/11/17/red-states-tax-takers-blue-states-tax-makers/
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