Even a good faith bipartisan tax reform effort would run into the problem that federal taxation policy has an impact on state and local tax policy, and making changes in deductions will hurt some states while benefitting others. The home mortgage deduction and the deduction for state and local taxes benefit states with high taxes and high home values. Those tend to be traditionally blue states, especially in the Mid-Atlantic region of the country. It’s true that the primary beneficiaries tend to be wealthy. They make enough money to make it worth their while to itemize their tax returns, they own real property, and their state and local taxes are more than a pittance. But not every one who pays a mortgage is a fat cat, obviously, and the SALT deduction makes it less painful for state and local legislators to impose taxes, raise revenue, and provide services that lower income people need.
It can be argued that the Mid-Atlantic states (as well as states like Illinois, California and Texas) get a sweet deal on these deductions, and it effectively amounts to lower-tax, lower property value states subsidizing their taxes. On the merits, it might not be wrong to eliminate or cap the home mortgage and SALT deductions. But, as a political matter, it’s not something too many New York or Pennsylvania or New Jersey Republicans will vote for. Here’s just two examples:
“I intend to fight it with everything I know how,” said Rep. Tom MacArthur (R-N.J.), who represents a district where 43 percent of tax filers claim SALT deductions and signed a bipartisan letter to Treasury Secretary Steven Mnuchin urging him to preserve the break. “It’s a big deal for states like ours.”
…Rep. Peter T. King (R-N.Y.), who represents a middle-class Long Island district, said he could never vote for a tax bill that eliminated the deduction, especially for property taxes.
“These people have 60-by-100 [foot] plots, they’re paying about $15,000 a year in property taxes, high state income taxes, not into Wall Street, not into stocks and bonds,” he said. “It would be devastating. These are Trump voters. They didn’t vote for him to take away the deduction on their main asset.”
Paul Ryan has discussed some possible ways to lesson the blow, perhaps by doubling the standard deduction, for example, but I’m not really concerned about what constitutes fair or sensible tax policy in this piece. I’m focused on what is politically possible.
There are a bunch of constraints facing the effort to do tax reform. The Republicans want to avoid a Senate filibuster, but that means they have to make the bill budget neutral (or better) after ten years or the whole bill will fail a parliamentary challenge. They could let the bill sunset after ten years, but that’s a fallback position. If these reforms are to be more permanent, they need to pay for the cuts. Without taking money from home owners and SALT itemizers, they won’t be able to accomplish that. They also need to keep almost all their senators on board, because if even three of them won’t vote for the bill, it won’t pass even at the lower filibuster-proof 50-vote threshold. Over in the House, the Republicans still have a healthy majority, but they also have a lot of members from states that will get pretty badly dinged by these proposals. I wouldn’t assume that every member from Texas would go for these changes, but they definitely will lose votes in states like Pennsylvania, Illinois and California, as well as New York and New Jersey. It’s not a sure thing that the House could pass that kind of bill.
We saw on health care, that a division over Medicaid expansion just wasn’t bridgeable. Any tax reform will have many more chasms to span. The reporting should reflect this.
If the Republicans are going to use the budget reconciliation process to avoid a filibuster on tax reform, they’re probably not going to be able to pass anything that can survive the budget-neutral test. That means that the reforms will have to sunset or the rules will have to be waived somehow. My guess is that the real reporting job right now is to figure out what the Republicans will do when faced with that choice. What kind of support or resistance will there be to waiving the rules? If they’re willing to waive the rules, how will that change how they think about raising new revenue to offset cuts?
There are two other options, of course. One is a likely failure that looks like the first two efforts to repeal Obamacare. The other is that the Trump administration makes a cool, rational assessment of the odds against success and concludes that tax reform is better pursued as a bipartisan exercise, knowing of course that this will mean the death of many conservatives’ fondest ambitions.
In any case, the media’s coverage should go deep and look a few steps ahead. There will be no straight line from here to a big tax reform bill. What people need to know is where the detours and exits lie, and whether the rules and norms will be busted or respected. That’s the kind of reporting we need.
I think the tax on capital gains needs to go WAY up. You can reduce the taxes on wages (or even ‘interest & dividends’) too.
Why? Because economic inflation and crashes start with asset bubbles, and that is ALL about capital gains. Tamp it down.
You can add a “cash out for retirement” exception, but with a reasonable cap on amounts.
Basically, realized Cap gains needs to be treated like ordinary income. All income needs to be treated the same. But I thought this was a thread about what was actually politically possible.
Well, clearly I will be coming here for all my updates on the tax shenanigans in Congress, since what’s actually going on will never fit into soundbite reporting, even assuming those reporters had one-tenth the understanding Booman has of the process.
Agreed!
AMT can reduce the benefit of SALT. So maybe they will do away with the AMT or something to soften the blow. Somehow I suspect those in the higher tax brackets will be ok but those just below that will pay more taxes. Needs to be watched.
I dont understand the reluctance to sunset, the Bush taxcuts after all remained in place in reduced form even under the other party’s president. Except for the brief 4 years that resulted from epic failure republicans have ruled the house for decades. They will likely continue to do so when the taxes sunset.
If rates don’t sunset, then you have to propose new ones. That could cause a shit storm getting the votes. But, in the end, I would bet they will take it anyway they can.
Most of the Bush cuts remained in place, but the ones affecting the wealthiest mostly didn’t. Those are the only tax cuts the Republican paymasters care about, so to their view the Bush tax cuts ended up a long-term failure.
A distinct point
It wasn’t close to a failure.
The GOP strategy is to starve the government of revenue. The extension of the lower income cuts means you get less revenue.
Grover Norquist was dead right when he noted in the end the Democrats caved on the Bush tax cuts.
Total Revenue:
FY 2017 (est.) – $3.460 trillion.
FY 2016 – $3.268 trillion.
FY 2015 – $3.250 trillion.
FY 2014 – $3.021 trillion.
FY 2013 – $2.775 trillion.
FY 2012 – $2.45 trillion.
FY 2011 – $2.3 trillion.
FY 2010 – $2.16 trillion.
FY 2009 – $2.1 trillion.
FY 2008 – $2.52 trillion.
FY 2007 – $2.57 trillion.
FY 2006 – $2.4 trillion.
FY 2005 – $2.15 trillion.
FY 2004 – $1.88 trillion.
FY 2003 – $1.72 trillion.
FY 2002 – $1.85 trillion.
FY 2001 – $1.99 trilion.
FY 2000 – $2.03 trillion.
Significantly higher than Clinton-era revenues in real dollars as well. It’s very slightly less as a percentage of GDP but constant-policy projections have it matching Clinton-era GDP % next year. Deficit outlook is healthy and sustainable as well.
This makes sense as long as you accept that there is enough revenue to support what the government needs to do.
There isn’t.
Non-defense domestic spending has been starved since the stimulus package was passed.
As entitlements grow, the amount left will shrink over time. You can get some of that from defense, but not enough.
There was enough to support what the government was doing.
If more spending is legislated more revenue is needed. I think we both agree that more spending should be legislated.
As is the gap between revenue and spending is small.
The projections I linked include spending projections, i e entitlement growth.
Longer run entitlement growth 20+ years out may require more revenue, especially if we assume Trump puts a serious dent in immigration, but it’s all at a very manageable level. Current rates would easily support future entitlements simply by allowing more immigrants into the country.
Sure, but that wasn’t your original argument. Your original argument was ‘Dems are stupid and evil and made the government take in less money overall’ and that’s distinctly not true. We’re taking in more money. That it’s not enough is also true. But there is more money available than there previously had been.
But your original argument was still a blatant lie with some name calling involved.
We will need considerably more revenue if we get single payer, and even if not we will need more. Anyway you look at it, we are revenue short. And they are looking to cut taxes and would dearly love to cut mandatory spending.
The problem I have with all of this is not what we want to spend but that we tend to hide it. No one stands up and says you are crazy, you can’t cut taxes, you have to increase them.
Once they get their tax cuts it will be hell to get back to where we are now let alone fund added social security or health care (and they are not done trying to repeal Obamacare).
Back in 2001 the Republican thinking was that they would pass as much tax cuts as they could, and then when the cuts were about to expire, they would scream and yell and Democrats would fold and the cuts would become permanent.
Well, the problem was that Democrats cut their throats instead. They neutered the “Estate Tax” by raising the exemption to $5.4 million per person ($10.8 per married couple) although the GOP is still trying to repeal it, stripped of any cover though. They maintained the middle class tax cuts, but nerfed some of the higher tax cuts that billionaires love. Now, that was a defeat in Wall Street eyes.
Now they are trying to undo it, but I’d be amazed if they were actually able to pull it off given the divisions in the House. Tax bills are not something you can just stuff through reconciliation.
Every state’s Senator has to be consulted when you’re doing a tax bill. There just isn’t time for that now. As much as they want to pass a tax cut, they have to make sure their state’s industry doesn’t get screwed. And that’s where the rubber meets the road. I think they’re mad to attempt it.
Substantively, one could argue for what Ryan has an offer – no mortgage interest in exchange for a higher standard deduction. It would redistribute wealth down, which is why Ryan is only offering it hoping also to redistribute it up. Within the middle-class, the game would redistribute from upper to lower. The poor mostly don’t pay income tax anyway, but a collapse in home values will tend to bring rents down as well. But the pain to homeowners has to exceed the gain to those groups, because Ryan’s actual objective is to have a surplus to hand to the rich.
This is designed to split the Democratic coalition and is an example of why I think it is a mistake to try to reach for a bipartisan tax bill. Eliminating the MID would not just increase some people’s taxes, it will devastate a lot of home values. Again, there are winners and losers in that, and the losers tend to be wealthier than the winners, but the losers counting on their homes for retirement could be devastated – for many of them, their home is their only substantial asset – whereas most of those who benefit will benefit more mildly. It will disproportionately hurt Democratic states, but it will also disproportionately benefit city dwellers, who tend to be renters and have higher incomes than others – the core of the Democratic Party.
This is not a fight the Democratic Party wants to have, which is why Ryan wants to have it. Let all the division remain on their side. Yes, it will split the Republicans too, but they are already very split. We don’t want to share the malady. The Democrats do not want to be put in a position of having to oppose provisions that actually redistribute wealth down ( really in this case up and down – out from the upper-middle in both directions), so the Democrats should just rule out bipartisan tax reform. We’re not going to get anything better than the status quo from the Republicans, and they are trying to set up fights that damage us.
The cocktail weenie crowd will always pine for bipartisanship, but the public is too polarized right now to share the romance.
On a practical level, I think the Democratic position at this point should be “no comment until a bill is on the floor”. There will be endless bitter fighting over this, and let the Republicans have all of it. Let’s him and him fight. Groups like AARP and the National Association of Realtors will take up the fight for the MID with a nonpartisan vengeance, and homeowners get very political about their home values. Let them get angry at the Republicans. It could move them at least to independent without us having to do anything. The relatively poor are less organized and paying less attention, and the members of that constituency available to the Republicans are already Republican, at least for now. There’s no room for gain there.
If the Republicans actually say they want Democratic input into the design, the Dems should not start with their proposals and try to tweak. They should propose a completely other agenda, and let the Republicans fight on our ground. It is not incumbent on us to pass anything. We are not the majority party.
Might help to have a popular solution that drastically simplifies the tax code ready to go at the point of impasse. Medicare-for-all actually is that coat-pocket proposal for health care.
But then, no one ever listens to a geezer.
Whatever happened to Yes, we can! ?
I think that’s a fine idea.
Geezer.
Progressive tax reform: an idea so obviously needed, and yet so seldom discussed.
It always seemed so obvious to me. A progressive tax reform would:
It’s not really very hard. You could sunset some of the major exclusions (mortgage interest, state and local taxes, health care insurance)
You’re right, like MFA on HCR the Democrats need a vision of their own.
Yeah… you’re full of it here.
The Medicare-For-All proposal on the table is insane. It doesn’t even acknowledge the millions of jobs that are going to go up in smoke from the personnel reductions that would occur because medical insurance as we know it would disappear over night. Hell, reducing the cost from duplicate reduction is the fricken point, but it does nothing to acknowledge that those duplication are people who won’t have a job, and there simply are not jobs available that millions of people can just slide into.
We need to do something on healthcare, but dumbass plans that call for millions of people to be out of work with nothing done to alleviate their plight isn’t one of them.
And that’s even before you get into the fact that you have to pay for the damn thing. And for most Americans that’s going to be more money out of their pocket even though total costs go down, because like hell are the corporations going to pass on the saving to the workers.
Moving to a Universal Healthcare system is going to have transition pains. Any plan that doesn’t at least acknowledge this is bullshit from a con-artist. Any plan that doesn’t actually tell us up front ‘And we’re going to do these things to lessen the impact from the change over in these ways with this intent’ is beyond stupid and doomed to fail.
That is an issue, no doubt. Do you have any idea how many people you are talking about? I saw one number of just under 600k. That will be expensive to provide severance. But there is yet another issue. There is considerable investment in those insurance companies. So if they are bought out as well, it is a lot of money. That is a bridge that will have to be crossed. It could cost billions. So, yes, it needs to be addressed.
I don’t want to push too hard against Sander’s (likewise Conyers’) proposal because it’s obviously aspirational and not serious legislation that anyone would actually vote into law. As a simple statement of principle “Democrats support single payer” is a good position to take.
But it is annoying that there are existing plans to get to single payer that deal with the transition in a serious way that really could be supported and voted into law that Sanders ignored to propose a maximalist pie-in-the-sky proposal.
If Conyers plan still thinks they are going to tax financial transactions, they are just nuts. Never going to happen and if it did, it would have a target the size of Texas on its side. Sanders had an idea to continue to tax business as a payroll tax. I don’t know how much more they would need, but that sounds like the best way to go. And it might be a heck of a lot easier to transition by lowering the medicare age gradually.
I think you’re right about what would happen to a tax on financial transactions, though I think in a sane world, it would be a great ideal. That said, if we limit the options for what we do in power to what doesn’t draw a target on our/it’s back we’ll never do anything. It is however something you have to way into the cost benefit analysis.
The govt should always look to raise revenue in a way that discourages toxic behavior. That way tax policy is a twofer. The FTT does that on steroids. Carbon tax, tobacco tax, gas tax. All are other good examples of this kind of tax.
If the transaction tax rate is set very low then almost all the revenue it raises comes from high frequency trading which is terrible behavior that should be discouraged.
Almost anything that makes HFT less profitable is good policy.
Well sure. In public, I can see that. On a liberal site among ourselves? Eh. I think it’s more important to not get high off our own supply as it were.
The plans on the table are good slogans. But they are shit plans.
From a practical standpoint, I suspect that it makes more sense to look at taxes overall on a county level and map national differences by county on total local effective rates, total local and state effective rates, and total local, state, and federal effective rates, with the tint of the county determined by the intensity of income, property, and sales taxes. That little rainbow could be quite informative about equities and inequities.
Balance it with with a similar chart that tints the county by the intensity of government expenditures received per capita – federal, state, local. Minus Social Security receipts.
My sense is that there are some broad scale generalizations about taxes and receipts that are hiding where real inequities are. Inequities that could be ferreted out with other per capita data and finer grained urban tax impact and expenditure impact data.
Red state/blue state has been just too convenient for Republican propaganda because Democratic operatives seized on it as a marketing tool.
Military expenditures as a tax expenditure is too easy to sweep under the table.
And if someone really, really wants to make a beef about Socical Security, map the intensity against the number of eligible Social Security beneficiaries per county and tint it with the average prevailing wage for the past 50 years (red for below average and blue for above average, eh?).
Won’t be long after the bill hits the floor there will be a complete analysis by Goldman and Wall Street. And every elite and well to do person will plug it into their turbo tax to check the impact. This won’t be a mystery unless they pass it in the night when we are all sleeping. Let the fun begin.
Long before that Goldman will be calling their wealthy clients to get them to argue for the estate tax elimination – which for the rich is really the biggest tax cut they could have.
Sure they want to perpetuate their private empires forever. Maybe they will re establish divine right and appoint themselves royalty.
“… the Trump administration makes a cool, rational assessment of the odds against success and concludes…”
“In any case, the media’s coverage should go deep and look a few steps ahead.”
Were you trying to be funny or do you really expect both of these to happen?
I think there is a bigger consensus in Washington than realized on corporate taxation, which is really the change Wall Street wants. I suspect that will pass as there are Democrats who believe in it (and I think you can argue Clinton would have supported something on this had she won).
Basically the rest of the debate will be over what is pretty close to the Romney plan.
Booman – I would love to get your take on the latest GOP healthcare repeal bill, now that things are getting serious. Shall we see a post shortly?
This doesn’t go far enough. State and local tax bills should be deducted from the Federal tax bill. That, more than anything will ensure state rights. I’m fucking sick of NJ NY etc getting 60 cents for every dollar sent to DC because the red states vote down things like transit funding. Fuck the crackers. NJ/NY keeps its tax base to build new tunnels and bridges, Missouri can blow their taxes on a new truck pull complex. Let the states be economic labs! It’s totally in line with RWNJ philosophy.
Fund the military with a carbon tax, The only reason for its size is to maintain the Petro-dollar. It’s gonna die sometime. Better at our hands then trying to deal with it after a Wahhabi coup in Saudi Arabia.