Republicans, Ideology and Doom of the State and Local Tax Deduction
In consideration of the increasing influence of the virtual on the real in our political discourse, I begin with the caution that Sportin ‘Life in Porgy and Bess indicates: “That is not necessarily the case.”
On the surface, the debate about the size of state and local tax payments (SALT) appears to be federal income tax deductible, with two surprising role reversals. Conservative Republicans are defending their 2017 decision to raise taxes for some high-income Americans, while efforts to reverse that are led by Liberal Democrats.
True, the GOP’s enthusiasm for increasing the income of the wealthy is mostly aimed at voters in states who vote democratically, and its 2017 law more than offsets any increase that falls on most of its supporters with other, larger cuts than out.
Despite this political selectivity, however, there still seems to be a huge discrepancy between the Republican belief that tax increases lead to a decline in GDP and their insistence on higher contributions from those who work in companies where America is the world’s highest to request the IRS: Technology and Intellectual Property (California) Biomedical Research (Massachusetts) Finance (New York) Pharmaceuticals (New Jersey).
But when you look at this issue in the broader context of American politics, it becomes clear that this is no exception to the ideological split over the role government should play in our economy. Instead, it’s not just an endorsement of it, but an indication of how deep it has gotten.
For the right, the ideological consequence is no match for the passionate desire to “own the libraries”.
This shows a deep conservative determination to diminish the resources we spend on public ends – in this case, by causing pain to those who argue otherwise.
For this reason, the Republicans’ success in fully taxing residents of high-tax countries on income that they do not keep but automatically pass on to their sub-federal governments is a major victory in their anti-tax crusade.
Understanding this requires attention to an often overlooked but very important factor in American politics: the current tug-of-war between states.
Driven by both self-interest in increasing their economic footprint and the need to prove that liberal policies are bad for business, Republican governors and lawmakers are trying not just to keep taxes low, to stifle union growth and to minimize the rules to protect the environment, promote these results vigorously to the people who decide where companies are based.
An example of the strength of this far too little-noticed motivation is how Sen. Bob CorkerRobert (Bob) Phillips CorkerCheney will be the face of the anti-Trump GOP helped crack down on an organizing campaign by workers at the Volkswagen factory in Chattanooga, Tennessee. Concerned by the company’s statements of support, Corker and other Tennessee Republicans threatened that if the union campaign were successful, a proposed package of financial aid for the expansion would be withdrawn. When asked why they opposed the employer-favored union, Corker said that if the union won, wages across the region would come under pressure, which in turn would make it harder for Tennessee to convince companies to do so leave where workers would be better paid.
Not only does the same logic apply to the differences in the level of public spending between states, but the Republican advocacy of higher taxation creates a win-win situation for the right-wing in this case. If New Jersey, New York, Massachusetts, California et. al. do not lower their high-end interest rates, the siren song of the low-tax countries will continue to sound louder.
Evidence that the personal preferences of top executives influence location decisions underlines this argument.
However, if that pressure results in lowering the revenue demands of these more liberal states, the anti-tax crusaders will sing a different, but equally triumphant tune: they will quote this to counter the inconvenient fact that high state taxes are fully compatible with strong economic performance.
Republicans shouldn’t take this chance to undo one of their major philosophical drawbacks.
Two caveats are appropriate. First, there are principled advocates of tax justice like Bernie SandersBernie SandersDemocrats outraged after Manchin opposes Biden’s spending bill on Sunday – Manchin says he can’t support Biden’s spending plan (I-Vt.) Who oppose state and local withdrawal for legitimate ideological reasons. I believe the need to support rather than punish voters who advocate higher public spending outweighs the argument of fairness, but I recognize its sincerity. Second, I note that as Maine residents, Jim and I are beneficiaries of the partition – but I am willing to provide a list of the parts of the tax law that I endorse that are unfavorable to me.
In summary, the central question in this debate is whether or not you feel discouraged by the willingness of voters in some states to tax themselves more heavily than their neighbors. Remember, this is a tax deduction, not a credit. Wealthy residents of New Jersey, New York, California, and Massachusetts who chose not to move to low-tax areas paid more of their income to support what they believed to be an adequate level of public service before the withholding was significantly reduced since it will when it is fully reported.
What the Republicans put in the 2017 tax bill to penalize high tax areas was an integral part of their war on the public sector under the banner of Ronald Reagan’s declaration that “the government is the problem.”
Those of us who recognize this view poses a threat to our quality of life need not apologize for opposing what is a deterrent to those willing to pay higher state and local taxes to get one Fund adequate levels of public goods.
Barney Frank represented Massachusetts in the US House of Representatives for 16 terms (1981-2013) and was Chairman of the House of Representatives Financial Services Committee from 2007 to 2011.