SALT and Self-Government

Last updated on: November 6, 2017 at 9:02 am by Jane the Actuary

SALT and Self-Government 2017-11-06T09:02:31-06:00 Jane the Actuary

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or, “Why Democrats should oppose the state and local tax deduction.” (Part I in commentary on the GOP tax reform.)

After much debate and many news reports on the topic, the current GOP tax proposal includes a cap of $10,000 on state and local tax deductions — that’s state income taxes, local property taxes, sales taxes as an alternative for states without an income tax, and the like. And while we were waiting for the announcement, there was much moaning about how the prior suggestions to eliminate the deduction entirely were a way of punishing “blue states” which were higher-tax states.

But it seems to me that one’s perspective on these taxes is dependent heavily on one’s perspective of government.

Is government “just another word for the things we choose to do together”? (That quote has been so thoroughly mocked by conservatives that I cannot find the original source any longer — readers, if you know, I’ll update the post.)

Are the decisions a given state makes on how well to fund its universities, for instance, made collectively, for the greater good of the people of the state? Are questions on school funding (the largest source of property taxes) made by the individuals in that school district, for the benefit of the children, and for their own benefit, by keeping property values up and undesirables away? Do the individuals in a given high-tax state, through their representatives, choose to spend more generously on social welfare programs such as Medicaid or other healthcare spending, childcare benefits for the poor, universal preschool, and the like?

Well, then, these decisions to assess high tax levels, are similar to charitable giving — giving from your income to support the greater good, or (parallel to wealthy school districts) to indirectly benefit one’s own family (e.g., children’s sports that your kids participate in, your child’s private school). And there are scads of people on the Left who have said that charitable deductions should be scrapped.

On the other hand, if you believe that individuals have relatively little power to have an impact on state or local (big city) government because it’s too corrupt and those in power are too entrenched due to their corruption, then taxes are subtractions from your income that you have no meaningful control over. And the more you believe that the economy consists of Makers and Takers, the more you’re going to feel that your taxes are going to benefit other people, not yourself, even indirectly by improving overall quality of life. In such a case, it seems plenty appropriate to be able to subtract them from your taxable income, because it’s a part of your income that you never had any benefit from.

In other words, the greater your conviction that state and local governance is truly “by the people,” the more willingly you should accept the elimination of the deduction for state and local taxes.

And since, in those high-tax states, which tend to have Democrats in power, those same Democrats are happy to defend those taxes as a freely-made decision by the people of those states to tax themselves in return for greater services, they ought to be a-OK with the elimination of the tax deduction, no?

As always, your Sunday-afternoon thoughts welcome.

Image: https://commons.wikimedia.org/wiki/File%3AMoney_Cash.jpg; By Jericho [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

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