The Republican tax plan is, of course, a huge giveaway to the rich, and (as with most tax “reform” passed since Jimmy Carter started us down this path in 1978) almost all of the benefits will go to the people who need it least.
But there’s an element of this that hasn’t been discussed much. The tax plan is a direct attack on local and state government in places that voted against Trump and typically support Democrats.
The key change on the revenue side — pretty much the only change on the revenue side — is a $1 trillion change that would eliminate the federal tax deduction for state and local taxes. That’s been part of the tax code for a long time; the principle is that people shouldn’t have to pay taxes on money they’ve already paid in taxes.
Whatever you think about that concept, the reality is simple: The GOP plan will hurt people in states with high local taxes — and most of them are blue states.
Some Republicans from places like New York, New Jersey, and California are worried, and they should be: Their middle-class, homeowner constituents will get royally screwed by this deal. In some wealthy areas in New York State, local property taxes add up to $30,000 or more a year on the typical house. Even working-class homeowners in upstate New York cities often pay $10,000 or more a year in property taxes.
California and New York have fairly progressive state income taxes. New York City and Philadelphia have city income taxes. Because people can deduct those payments from their federal income taxes, a significant part of that money comes back from Washington to local and state government.
So what happens if the Trump plan passes? All of a sudden, people who live in states and cities with high local taxes see their IRS bill go up, maybe by a lot. And since they can no longer deduct the local taxes, they are going to start demanding that those local taxes go down.
The Trump plan could set off another Prop. 13-style assault on local and state taxes — again, mostly in blue states where those taxes are higher — and cripple local and state government.
That, of course, is part of the not-so-secret agenda of the radical right, and Trump is their guy.
I’d like to think that when working-class homeowners see their taxes go up in 2018, they’ll blame the Republicans. But if the Democrats don’t get the messaging right, the blame will fall on “free-spending” local governments — and lead to an attack on public employee unions, pensions, social services, education, and all of the organizations and programs that the Trump crew hates.
This is a potentially huge problem. We need to start thinking about it now.
Currently, the Federal Taxpayers in states outside of NY and CA subsidize Federal Income Tax for those who live in NY and CA. Just as Renters subsidize homeowners who claim the Home Mortgage Interest Deduction. Every tax write off is subsidized by someone else. And 95% of taxpayers subsidize the wealthiest people in the country.
We need real change to the tax code. One rate for everyone. No deductions; Zero Corporate Income tax. Instead, the tax on Earnings would be paid by stockholders at personal income tax rates.
And turning California and NY purple?
As long as Trump's taxes go down, the GOP will pass this.
CA, as a high-tax state, does not have a 'revenue problem' – it has a spending problem.
Maybe on the bright side, it will make CA less attractive for people to come here. And thus make it more attractive for people to go to low-tax (and low cost) Red states. Like Mississippi? Montana? Kentucky?
The Rs might actually be stabbing themselves in the back, turning their safe havens Purple.