Dump the federal deduction on state and local taxes.
As the GOP’s tax-cut bill advances through Congress, Republicans completely should scrap the federal deduction on state and local taxes (SALT).
While this reform is not yet enacted, it already is having a positive effect: Liberal Democrats are holstering their magic wands and focusing on the consequences of their lust for high taxes.
“We’ve got to hit the pause button right now,” Democrat Steve Sweeney, president of New Jersey’s state senate, told Fox News Channel’s Neil Cavuto on November 21. “After I had got elected, I had said, ‘First thing on the agenda is the millionaires’ tax. We gotta get it for school funding.’ And then this happened, and it’s like, ‘Wait a minute, I gotta take a step back and be more pragmatic and think about what’s best for the state of New Jersey.’ You know, 1 percent of people in the state of New Jersey pay about 42 percent of its tax base. And you know, they can leave.”
Sweeney appeared chastened, refreshingly cautious, and suddenly aware that hiking levies on those who already pay more than their fair share of taxes is a perfect way to “force people to look to another place” to live and work, as he put it. (And if paying 42 percent of income taxes is not beyond “fair” for the top 1 percent, then what is?) Sweeney added: “It’s scary as hell, to be perfectly honest with you.”
Tax-happy Democrats elsewhere seem similarly concerned.
“The repeal of SALT could force an uncomfortable tax discussion for high-tax states,” Politico recently reported. “Should they consider lowering tax rates, to alleviate the additional tax burden that the elimination of the deductions creates? Or keep taxes as they are — and run the risk of losing wealthy residents who might move elsewhere to soften their tax burden? And for politicians who’ve called for the politically popular idea of raising taxes on the wealthy, would the SALT repeal force them to backtrack?”
As Manhattan Institute senior fellow Steve Malanga told me, “the intensity of the Democratic response to the prospect that Congress will eliminate the SALT deduction shows how worried blue-state politicians are that they’ll come under heavy pressure from their own citizens to reduce taxes after federal reform.”
Thirty-six panicked Democrats in California’s U.S. House delegation wrote GOP leaders on October 23. “The elimination of SALT would pressure state and local governments to make cuts and take in less revenue,” they fretted.
SALT is the opiate of the overtaxed masses.
SALT repeal is “an attack on California, New York, and New Jersey,” Golden State Democratic governor Jerry Brown moaned. In fact, these three states compose 18 percent of the U.S. population, but 39 percent of SALT exemptions. This itemized deduction, like all others, skews toward America’s chalets, not its shacks. According to FreedomWorks’ Jason Pye, “Those who itemize are almost exclusively members of the top two income quintiles.”
George Sweeting, deputy director of New York City’s Independent Budget Office, says this about ditching SALT: “I think it could increase pressure [to lower taxes], but what it certainly will do, I think, is make it a tougher challenge if the city or the state wanted to raise their taxes.”
“Taxes should hurt,” Ronald Reagan once said. He referred to withholding taxes, which empower politicians to siphon workers’ money stealthily, before it reaches their paychecks. Writing the IRS a check each month, like covering the rent, would help taxpayers feel the public sector’s true cost. This would boost demand for tax relief and fuel scrutiny of big government.
Like withholding taxes, SALT keeps high state-and-local taxes from hurting. In that sense, SALT is the opiate of the overtaxed masses. The heavy levies that liberal Democrats (and, inexcusably, some statist Republicans) impose from New York’s city hall to statehouses in Albany, Trenton, and Sacramento lack their full sting, since SALT soothes their pain.
Just wait: Once social-justice warriors from Malibu to Manhattan feel the entire weight of their Democrat overlords’ yokes around their necks, they will squeal. Some will join the stampede to income-tax-free states, including Texas and Florida. (Miami officials will host a come-on-down bash to lure affluent Northeasterners at December’s Art Basel extravaganza). Others will turn to their leftist heroes — including Gotham mayor Bill de Blasio and governors Brown and New York’s Andrew Cuomo — and scream: “Uncle!”
A conservative, the saying goes, is a liberal who has been mugged by reality. Dumping SALT into the Potomac should inspire a similar epiphany among the Democratic coastal elite.
While they’re at it, senators should kill an effort by some misguided Republicans to saddle the tax-cut bill with a tax-hike trigger. If revenues fall short, this provision would unleash automatic tax increases. Such fiscal question marks sow confusion, not confidence, in the minds of consumers and investors alike.
Once again, congressional Republicans are turning President Donald J. Trump’s straightforward tax-cut and simplification proposal into something more twisted and tangled than an osprey nest. Republicans should share the faith of presidents Kennedy and Reagan that lower, simpler, flatter taxes generate economic growth, which fills federal coffers. Spending restraint (like the Penny Plan), not tax-hike threats, will help curb potential deficits. Disarming this absurd, self-defeating tax-hike trigger is the only form of gun control that Republicans should support.
READ MORE:
The Republican Tax Bill Is a Serious Reform
The Debt Is No Reason Not to Pass Tax Reform