I could have told you trouble was coming when Washington began popularizing a new acronym: SALT. That was the first clue that they were already — but we would soon also be — talking quite a bit about the deductibility of State And Local Taxes.
Republicans would like to lower taxes for those who support them, but they’d like it even better if they could at the same time hike taxes of those who oppose them. I’m guessing Republicans couldn’t figure out a way to tax elevator rides and ocean breezes, because those are used and enjoyed disproportionately by Democrats.
The political right in Washington has advocated cutting taxes under every Republican administration since Reagan. When a Democrat inhabits the White House, they pivot their fiscal concerns to budget deficits. It’s a tidy little two-step dance. Cut taxes with Republican presidents. Cut services under Democratic presidents. The music never stops and the tune doesn’t change.
Their current plans for tax cuts show more spite than strategy. Nothing attracted more animus in these bills than education. They plan to punish a handful of the richest private universities by claiming a piece of their endowment returns. Those endowments are used to protect professors and attract an economically and racially diverse student body, and they would like to see less of both.
But try to imagine for a moment the conversation between Congressional leaders when it was first proposed that schoolteachers should no longer be able to deduct classroom supplies they purchased with their own money? How much money will be raised for the treasury by capping that expense deduction at $250? We already underpay our teachers, but now they want to punish those who sacrifice for their students?
Unlike school supplies, the state and local tax deduction deprives the federal government of substantial tax revenue. The National Association of Counties called the attempt to remove the deduction a “nearly $1.3 trillion revenue grab by the federal government.”
Their spite-over-strategy syntax is strong here too. There are certain states where residents are willing to pay more in taxes for more services. Other states prefer to keep services and the tax burden as low as possible. It’s not hard to guess which states have and attract more liberals.
California has the highest state income tax in the country, at 13.3 percent. Oregon and Washington, DC are next, at nearly 10 percent. New York and New Jersey are not far behind.
There are no U.S. Senators from those states who had anything to do with this tax proposal. They are all Democrats. So it’s not surprising that the Senate’s tax plan does away with the SALT deduction entirely. For good measure, they also want to cap mortgage deductibility at $500,000. That would buy you a mansion almost anywhere in the country, but in California it’s barely enough for a starter home. Spite.
But spite doesn’t make good strategy. What’s simple in the Senate might prove impossible in the House. Fourteen members of California’s Congressional delegation are Republicans. New York has sent nine Republicans to represent them. If those 23 Representatives refuse to vote for an effective tax increase on their constituents, House Speaker Paul Ryan has 218 Republican votes to pass the bill — exactly the number he will need.
That’s an untenable position for Ryan and for every Republican representative. Each one will be accused of not only raising taxes on his constituents, but of casting “the deciding vote.”
It’s worth noting that Iowa is the state with the fourth largest state income tax. Will Iowa’s two Republican senators vote for a tax bill that rescinds SALT deductibility? Will the state’s three Republican representatives go along? More importantly, what about every member of Congress with presidential aspirations? Will they want to spend their Iowa tour defending that vote?
In the end, many Republicans will be faced with a difficult choice. If they vote for the end of SALT deductions, that would give the party a boost in reputation. But is that party benefit worth the personal pain of becoming a target for an anti-tax activist ready to run against them? Not likely.
Don Kahle (email@example.com) writes a column each Friday for The Register-Guard and blogs