January 05, 2018

Why Capping State and Local Tax Deductions was a Bad Idea

Timothy Birdnow

Radio talk show host Mark Levine has Republican heads exploding with his argument against the changes made to tax law ending deductions for some state and local taxes. Ed straker at American Thinker argues most vociferously against Levin's complaint.

From the article:

"The new tax bill puts a $10,000 cap on state and local tax deductions, and Levin, who probably pays the top rate of 5.75% in Virginia (plus property taxes), which, given his income, probably amounts to a lot more than $10,000, feels that it is unfair not to be able to deduct such payments from federal taxes.

He points out that while someone making $100,000 in Maryland may pay lower federal taxes than someone making $100,000 in Texas, the Maryland taxpayer also has to pay a lot of state income tax that the person living in Texas doesn't."

End except.

He then goes on to call these deductions a subsidy for Blue States and argues they are inherently unfair.

He continues: "Levin makes the point that the federal government is a massive deficit-spender that wastes money (all true) but doesn't dispute that at each level of funding, people in low-tax states shoulder more of a federal burden. The fact that people in blue states also pay state taxes has nothing to do with the principle of everyone making the same income paying the same federal rate, regardless of where any given person lives.

Levin surprisingly misses the strongest policy argument for not making state and local taxes deductible. By insulating taxpayers to a degree from federal taxes, blue states have an easier time raising local taxes to fund their own income redistribution schemes. In fact, now, for the first time, we are seeing pressure on blue states to cap or lower their taxes because of the outcry over the sudden lack of deductibility of local taxes over $10,000."

End excerpt.

I have to respectfully disagree with Straker and agree with Levin, much as it pains me.

Look, I'm happy to punish these liberal Democrat states, make them face the folly of their ways. I am not immune to schadenfreude, but I think this is mistaken in a number of ways and will come back to bite the GOP - and Conservatives - in that dark and sunless place.

First, the whole notion that we somehow need to "pay for" the tax cut is ridiculous on the face of it; a cut you "pay for" is not a cut at all but a restructuring. You do not get the same benefits from restructuring that you do from actually cutting. Cuts mean people have more money to spend, and the fact is the people deducting state and local taxes at the top are the ones who spend the most money - and who invest the most money. They should be accorded the same tax cuts as the middle class because they will help drive the economy. This was a sneaky short term political trick, designed to take away the Democrats and media's power to say "tax cuts for the rich" but that won't stop the liberals, who will say that anyway. It also takes some disposable income away from those who would be willing to donate to the Democrats. But will it be enough? I doubt it will make much difference as there will no doubt be ways to shelter donations, so in the end this trick simply isn't going to be effective.

But the economic gains made by allowing the wealthy to keep their money is effective indeed, and while prospoerity may benefit the Democrats also (rising tides lift all boats) it will benefit the Republicans more as the base - middle America - grows much more wealthy.. Giving up this tax increase is like surrendering a pawn to take the Queen. It's a winning trade off for the GoP, if they would only have understood that.

And it is a tax increase, make no mistake. The Democrats will portray it as such when they talk to their wealthy donors, which is now largely the base of the Donkeys.

And more importantly, we need to make it clear to everyone that we are for tax CUTS. It must be done despite liberal objections and shown to work. Now we gave the Democrats a way out with this, handed them a life jacket.

As to the argument that this will enforce fiscal discipline I say poppycock! Democrats are constitutionally incapable of imposing fiscal discipline, because their entire political fortune is predicated on spending money and giving away bribes to voters.

Doubt me? Read my blogpost about the Illinois budget; Despite being well on the way to bankruptcy Illinois continues to waste money and drive away business and taxpayers. They simply cannot discipline themselves, lest the empirre Illinois House Speaker in perpetuity Michael Madigan and dead fish Rahm Emmanuel, the Jackson tribe, and our Daley dose built slip away from them.

Don't forget Rush Limbaugh fled New York City over high taxes and the Mayor rejoiced, despite losing a big tax payer.

But, but, but businesses and people will flee, reducing the tax bases of these states! So. In point of fact this is the biggest subsidy of all, much like the subsidy we have given Mexico and Central America lo these many years. Red states will end up taking the refugees from People's Republics around the formerly United States and many of those will be Republicans or independents who voted for Trump. Also, while there will be fewer taxpayers there will also be fewer people receiving benefits of some sort or other and that will probably suit the Suites in state capitals just fine.

But the biggest reason of all to avoid this is a long term problem; Limousine liberals will colonize their neighboring red states. Just take a look at Colorado, or Virginia, once reliably Republican, these are now purple at best and trending Democrat. The more the liberal states empty out the worse it will be for the GOP, who are going to lose control of states they need. Liberals advocate socialistic or at least welfare policies wherever they go, but they don't want to apply these concepts to themselves, so they will move to places that aren't so taxing while voting to recreate the hellhole they just left.

What we want to do is the opposite; keep liberals in blue states where they can't change the electoral map and nibble away at their flanks. That means making liberals happy in the deep blue states and in the cities and keep them the hell away from the rest of the country. Now they are locks on California and New York and the New England states, but if they scatter who knows> Texas? Florida? If the GOP loses any of these it will be doomsday.

So our tax policies should be to encourage the Left to stay at home while WE go after their rusting strongholds (like Wisconsin or Pennsylvania). Essentially this change in ppolicy feeds the bears in the park; we shouldn't be surprised when those bears maul us.

Posted by: Timothy Birdnow at 11:39 AM | No Comments | Add Comment
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