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Posts Tagged ‘Tax Reform’

I’m currently in Tokyo for an Innovation Summit. Perhaps because I once referred to Japan as a basket case, I’ve been asked to speak about policies that are needed to boost the nation’s competitiveness.

That sounds like an easy topic since I can simply explain that free markets and small government are the universal recipe for growth and prosperity.

But then I figured I should be more focused and look at some of Japan’s specific challenges. So I began to ponder whether I should talk about Japan’s high debt levels. Or perhaps the country’s repeated (and failed) attempts to stimulate the economy with Keynesianism. And Japan’s demographic crisis is also a very important issue.

But since I only have 20 minutes (not even counting Q&A), I don’t really have time for a detailed examination on any of those topics. So I was still uncertain of how best to illustrate the need for pro-market reforms.

My job suddenly got a lot easier, though, because Eduardo Porter of the New York Times wrote a column today that includes a graph very effectively illustrating why Japan is in trouble. Simply stated, the country is on a very bad trajectory of ever-higher taxes.

To elaborate, Japan used to have a relatively modest tax burden, as least compared to other industrialized nations. But then, thanks in part to the enactment of a value-added tax, the aggregate tax burden began to climb. It has jumped from about 18 percent of economic output in 1965 to about 32 percent of gross domestic product in 2015.

Even the French didn’t raise taxes that dramatically!

By the way, I feel compelled to digress and point out that Mr. Porter’s column was not designed to warn about rising taxes in Japan. Instead, he was whining about non-rising taxes in the United States. I’m not joking.

American tax policy must stand as one of the great mysteries of the global political economy. In 1969…federal, state and local governments in the United States raised about the same in taxes, as a share of the economy, as the government of the average industrialized country: 26.6 percent of gross domestic product, against 27 percent among the nations in the Organization for Economic Cooperation and Development. Nearly 50 years later, the tax picture has changed little in the United States. By 2015, …the figure was 26.4 percent of G.D.P. But across the market democracies of the O.E.C.D., the share had climbed by an average of more than seven percentage points. …Americans are paying dearly as a result, as their comparatively small government has proved incapable of providing an adequate safety net…there is no credible evidence that countries with higher tax rates necessarily grow less.

Americans are “paying dearly”? Are we “paying dearly” because our living standards are so much higher? Are we “paying dearly” because our growth rates are higher and Europe is failing to converge? Are we “paying dearly” because America’s poorest states are rich compared to European countries.

Now that I got that off my chest, let’s get back to our discussion about Japan.

Looking at the data from Economic Freedom of the World, Japan ranked among the world’s 10-freest economies as recently as 1990. Today, it ranks #39. That is a very unfortunate development, though I should point out that the nation’s relative decline isn’t solely because of misguided fiscal policy.

I’ll close by noting that even the good news from Japan isn’t that good. Yes, the government did slight lower its corporate tax rate so it no longer has the highest burden among developed nations. But having the second-highest corporate tax rate is hardly something to cheer about.

P.S. Since today’s column looks at the most depressing Japanese chart, I should remind people that I shared the most depressing Danish PowerPoint slide back in 2015. I may need to create a collection.

P.P.S. I doubt anyone will be surprised to learn that the OECD and IMF have been encouraging bad policy for Japan.

P.P.P.S. If I had to guess, I would say that Japan’s government is probably more competent than average. But that doesn’t mean it’s incapable of some bone-headed policies, such as a regulatory regime for coffee enemas and a giveaway program that was so convoluted that no companies asked for the free money.

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Back on November 2, I summarized the good and not-so-good features of the tax plan put forth by House Republicans. Here are the parts that made me happy.

And what was the most disappointing part of the plan?

  • Absence of spending restraint.

Regarding my disappointment, I’m not just being a curmudgeonly libertarian. The bill is filled with timid and convoluted provisions, as well as some undesirable revenue-raising provisions, precisely because of congressional rules on long-run deficit neutrality. As I’ve noted in some of my TV interviews, Republicans are pushing sub-par policy because you can’t fit a football player’s body into Pee Wee Herman’s clothes.

If Republicans were willing to impose some modest spending restraint, by contrast, that would have given them enormous flexibility for large tax cuts (while also balancing the budget!).

But I’m a semi-realist about Washington. I’m not going to make the perfect the enemy of the good (or, in this case, the sort-of-decent the enemy of the I-guess-this-is-acceptable).

Now let’s look at what Senate Republicans have unveiled. In some cases, my grades are identical to the House bill because many of the major provisions are quite similar. But there are some noteworthy differences.

Lower corporate rate: A-

America’s high corporate tax rate is probably the most self-destructive feature of the current system. If the rate is permanently reduced from 35 percent to 20 percent, that will be a huge boost to competitiveness. The only downside is that the lower rate is deferred until 2019.

Lower individual rates: C+

The proposal is relatively timid on rate reductions for households. This is disappointing, but not unexpected since lower individual tax rates mean considerable revenue loss.

Ending deduction for state and local taxes: A+

Next to the lower corporate tax rate, this is the best part of the proposal. It generates revenue to use for pro-growth provisions while also eliminating a subsidy for bad policy on the part of state and local governments. Indeed, the Senate bill goes farther than the House bill since it includes property taxes. So I’ve retroactively changed my grade for the House bill from A+ to A- so I can give the Senate bill an A+.

Curtailing mortgage interest deduction: C

The deduction remains for home mortgages, but is curtailed for home equity loans. A timed improvement that will only slightly reduce the distortion that creates a bias for residential real estate compared to business investment.

Death tax repeal: C+

There’s no repeal. Just an increase in the amount of family savings that can be protected from the tax. Better than nothing, to be sure, but disappointing.

Change to consumer price index: C

It is quite likely that the consumer price index overstates inflation because it doesn’t properly capture increases in the quality of goods and service. Shifting to a different price index will lead to higher revenues because tax brackets and other provisions of the tax code won’t adjust at the same rate. That’s fine, but I’m dissatisfied with this provision since it should apply to spending programs as well as the tax code.

Reduced business interest deduction: C+

The business interest deduction is partially undone, which is a step toward equal treatment of debt and equity. It’s not the right way of achieving that goal, but it does generate revenue to finance other pro-growth changes in the legislation.

Now let’s zoom out and grade the overall plan in terms of major fiscal and economic goals.

And you’ll see that all I’ve done is repeat exactly what I wrote about the House bill.

Restraining the growth of government: F

In my fantasy world, I want a return to the very small federal government created and envisioned by the Founding Fathers. In the real world, I simply hope for a modest bit of spending restraint. This legislation doesn’t even pretend to curtail the growth of government, which is unfortunate since some fiscal prudence (federal budget growing about 2 percent per year) would have allowed a very large tax cut while also balancing the budget within 10 years.

Collecting revenue in a less-destructive manner: B

This is a positive proposal. It will mean more jobs, increased competitiveness, and higher incomes. The wonks in Washington doubtlessly will debate whether these positive effects are small or large, but I’m not overly fixated on that issue. Yes, I think the growth effects will be significant, but I also realize that many other policies also determine economic performance. The most important thing to understand, thought is that even small increases in growth make a big difference over time.

Now let’s take a closer look at how the House and Senate plans differ.

The Tax Foundation put together a very helpful comparison. I’ve broken it into three parts so I can interject some final commentary.

For this first section, since I already gave my two cents about itemized deductions, I’ll simply observe that the Senate plan is slightly better on individual income tax rates.

For this second section, I’ll merely note that the first provision is basically an attempt to give relief to small businesses that are subject to the individual income tax.

The provisions are complicated because it’s not easy to lower tax rates for “Schedule C” income in a way that doesn’t benefit taxpayers who aren’t perceived as being conventional small businesses.

For this final section, the part that’s disappointing to me is “international income.” Both the House and Senate adopt territorial taxation for businesses, which is very good.

But the congressional plans then claw back a bunch of money with OECD-style “base-erosion” policies and Obama-style global minimum taxes. It’s unclear if the net effect is modestly positive or modestly negative, but it’s not what many of us wanted when we pushed for territoriality.

I’ll close by noting that I’m actually pleasantly surprised by the two plans. Yes, I’m grading on a curve, but I had very low expectations this year. I basically hoped to get a lower corporate rate with a bit of window dressing.

And at one point we were actually forced to play defense because Republicans were looking at a very troubling proposal for a “border-adjusted tax.”

So even though I fantasize about a flat tax, I’m reasonably happy about where we are now.

The bottom line is that there’s now a good chance of getting legislation that drops the corporate rate to 20 percent while also eliminating the deduction for state and local income taxes. Those are two very good policies. And if we somehow get death tax repeal, that means three substantive, pro-growth reforms. Fingers crossed.

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The swamp is pulsating with excitement. For the lobbying community, tax reform is like Christmas. No matter what happens, they win because of lucrative retainers and fat contracts.

And what about libertarian policy wonks? What do we get? Well, we look at the sausage-making process in Washington with disdain, but we hope that the final outcome is a less-destructive tax system.

And there are some interesting debates along the way. Here’s an interview I did a couple of days ago with Maya MacGuineas of the Committee for a Responsible Federal Budget. We touch on several topics relating to tax reform, but pay close attention to the discussion on federal spending and red ink because you’ll see a very interesting mix of agreement and disagreement.

There are big areas of overlap. We both like spending restraint. We both favor getting rid of loopholes (though I fear she may favor the Haig-Simons definition of loopholes rather than the consumption-base definition). And we both seem to agree that lower tax rates can improve economic performance.

But it seems we might diverge on whether a stand-alone tax cut is desirable. My view is that the right kind of tax cut will boost incentives for productive behavior. Yes, that can produce more red ink, but that’s not necessarily a bad thing if it “starves the beast” and creates pressure to restrain the growth of spending. I’m motivated by a desire to limit the overall size of government.

Maya, by contrast, is not happy that Congress is considering a stand-alone tax cut. As a “deficit hawk,” she would prefer that the tax cut be “paid for” with spending restraint or by cutting back on tax preferences. She is motivated by a desire to limit red ink.

For what it’s worth, I think she’s focusing on the symptom or red ink when it would be better to focus on the underlying disease of excessive spending.

I think this 2×2 matrix is a good way of illustrating our areas of agreement and disagreement. Libertarians like me are in the top-left box. Indeed, in the top-left corner of the top-left box. I want less spending and lower taxes. Deficit hawks like Maya, by contrast, are going to be somewhere in the lower-left box since they want less spending but are open to higher taxes.

I also added other groups to the matrix, such as Reaganites (i.e. the Gipper), populists (i.e., Trump), and so-called compassionate conservatives (i.e., Bush). As well as some Democratic politicians such as Bill Clinton, Hillary Clinton, and Crazy Bernie. Since I’m going by gut instinct, I’m not going to claim everybody is in the exact right spot, but I do think this is a decent representation of the real debate in Washington.

But it’s not a perfect representation. For instance, we know the folks in the lower-left box care about red ink. But you can also find people in the top-left box and lower-right box who favor balanced budgets. Perhaps there should be a diagonal line from the top left to the lower right so that we can see who wants balanced budgets and/or budget surpluses.

So here’s a slightly more cluttered version of my fiscal matrix.

And I added Hong Kong and Sweden to the matrix to show that balanced budgets are possible with small government or big government.

Last but not least, I decided to create one more visual. The fiscal matrix is mostly designed to show preferences on spending and taxes, with the obvious implication that people below the diagonal line don’t like deficits.

But if we consider just red ink, here’s a spectrum showing how people view deficits. Maya and her group are in the deficits-are-horrible camp on one end, while the deficits-are-wonderful Keynesians are on the other end. And I put myself in the middle to represent the alleged voice of moderation.

Though even this spectrum isn’t really accurate since Keynes only believed in deficits during a downturn. And I confess I have no idea whether Maya would support red ink in that circumstance.

By the way, I can’t resist commenting on a few other moments in the interview.

  • First, Maya said that tax cuts don’t pay for themselves. That’s true (except in rare circumstances), but it’s still very important to realize that supply-side tax cuts can produce some degree of revenue feedback.
  • Second, modest spending restraint would enable both huge tax cuts and a balanced budget.
  • Third, Republicans in Congress actually approved budgets that restrained spending when Obama was in the White House (hence, my reference in the interview to the Ryan budgets).

I’ll close with a grim prediction. The tax reform battle will be Part II of the Obamacare repeal battle. I fear the effort will come to naught. Those 76,000 pages in the tax code are defended by too many powerful interest groups.

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House Republicans have unveiled their much-anticipated tax plan.

Is this something to celebrate? Well, that depends on whether you’re grading on a curve. Compared to a pure, simple, and fair flat tax, it’s timid and disappointing.

But compared to today’s wretched and unfair tax code, there are some very positive changes.

At the end of 2015, I reviewed the major tax plans put forth by the various presidential candidates, grading them on issues such as tax rates, double taxation, and simplicity.

Trump’s plan got the lowest score, though “B-” nonetheless represented a non-trivial improvement over the status quo.

And since he wound up in the White House, nobody should be surprised to see that many of his priorities are reflected in the House plan.

So let’s grade the major provisions of this new proposal (with the caveat that grades may change as more details emerge).

Lower corporate rate: A

America’s high corporate tax rate is probably the most self-destructive feature of the current system. If the rate is permanently reduced from 35 percent to 20 percent, that will be a huge boost to competitiveness.

Lower individual rates: C+

The proposal is relatively timid on rate reductions for households. This is disappointing, but not unexpected since lower individual tax rates mean considerable revenue loss.

Ending deduction for state and local income taxes: A-

Next to the lower corporate tax rate, this is the most encouraging part of the proposal. It generates revenue to use for pro-growth provisions while also eliminating a subsidy for bad policy on the part of state and local governments.

Curtailing mortgage interest deduction: B-

Instead of allowing mortgage interest deduction on homes up to $1 million, the cap is reduced to $500,000. A modest but positive improvement that will reduce the distortion that creates a bias for residential real estate compared to business investment.

Death tax repeal: A-

Don’t die for six years, because that’s how long it will take before the death tax is repealed. But if we actually get to that point, this will represent a very positive change to the tax system.

Change to consumer price index: C

It is quite likely that the consumer price index overstates inflation because it doesn’t properly capture increases in the quality of goods and service. Shifting to a different price index will lead to higher revenues because tax brackets and other provisions of the tax code won’t adjust at the same rate. That’s fine, but I’m dissatisfied with this provision since it should apply to spending programs as well as the tax code.

Reduced business interest deduction: C+

The business interest deduction is partially undone, which is a step toward equal treatment of debt and equity. It’s not the right way of achieving that goal, but it does generate revenue to finance other pro-growth changes in the legislation.

Here’s a useful summary from the Wall Street Journal of changes to business taxation.

Now let’s zoom out and grade the overall plan in terms of major fiscal and economic goals.

Restraining the growth of government: F

In my fantasy world, I want a return to the very small federal government created and envisioned by the Founding Fathers. In the real world, I simply hope for a modest bit of spending restraint. This legislation doesn’t even pretend to curtail the growth of government, which is unfortunate since some fiscal prudence (federal budget growing about 2 percent per year) would have allowed a very large tax cut while also balancing the budget within 10 years.

Collecting revenue in a less-destructive manner: B

This is a positive proposal. It will mean more jobs, increased competitiveness, and higher incomes. The wonks in Washington doubtlessly will debate whether these positive effects are small or large, but I’m not overly fixated on that issue. Yes, I think the growth effects will be significant, but I also realize that many other policies also determine economic performance. The most important thing to understand, thought is that even small increases in growth make a big difference over time.

The bottom line is that half a loaf (or, in this case, a fourth of a loaf) is better than nothing. House Republicans have a good plan. Now the question is whether the Senate makes it better or worse (hint: don’t be optimistic).

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It’s not easy being a libertarian in the policy world of Washington. I view the flat tax as a timid intermediate step, with the real goal being a tiny federal government (like the Founding Fathers envisioned) that can be financed without any broad-based tax.

Yet even my timid intermediate step is considered radical and impractical by DC standards. There’s no discussion of fundamental tax reform. Instead, the  debate revolves around whether we can reduce a couple of tax rates in one part of the code and “pay for” those changes by altering some provisions in another part of the code.

This is very frustrating, which is why I joked with Neil Cavuto that we could kill two birds with one stone by trading Trump, Hillary, Manafort, and Podesta to Russia in exchange for that country’s 13 percent flat tax.

But I want to address a couple of serious points in the interview.

To conclude, most people assume that something will pass simply because GOPers desperately need some sort of victory to compensate for their failure to repeal (or even just tinker with) Obamacare.

That’s true, but that doesn’t change the fact that any bill can be defeated if Democrats are unified in opposition and a small handful of Republicans decide to vote no.

By the way, I’m not completely unsympathetic to some of the Republicans who are wavering on whether to vote for a reform bill. Consider their predicament: If there’s a bill that cuts the corporate tax rate and gets rid of the deduction for state and local income taxes (to my chagrin, I’m assuming property taxes will still be deductible), that will be a net plus for the economy. But, depending on other provisions in the legislation, it may mean that a non-trivial number of voters (especially from high-tax states) will be hit with a tax increase.

Members of Congress who want good policy can explain to those voters that the economy will grow faster. They can tell those voters that their state politicians now will be more likely to reduce state income tax burdens. I think those assertions are true, but voters looking at higher tax burdens probably won’t care about those long-run effects.

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I’ve been arguing all year that a substantially lower corporate tax rate is the most vital goal of tax reform for reasons of competitiveness.

And I continued to beat that drum in an interview last week with Fox Business.

The Wall Street Journal agrees that the time has come for a lower corporate rate. Unless, of course, one would prefer the United States to fall even further behind other countries.

President Emmanuel Macron last week pushed a budget featuring substantial tax relief through the National Assembly. The top rate on corporate profits will fall to 28% by 2020 from 33.33% today, and Mr. Macron has promised 25% by 2022. …Critics branded Mr. Macron “the President for the rich” for these overhauls, but the main effect will be to stimulate investment and job creation… The Netherlands also is jumping on the bandwagon. Prime Minister Mark Rutte promises to cut the top corporate rate to 21% from 25% by 2021… Do American politicians really want to have to explain to voters why they let the U.S. trail even France?

For the most part, opponents of tax reform in the United States understand that they have lost the competitiveness argument. So they will pay lip service to the notion that a lower corporate rate is desirable (heck, even Obama notionally agreed), but they will fret about the loss of tax revenue and a supposed windfall for the “rich.”

I agree that tax revenues will decrease, at least in the short run. But there’s some very good research showing the long-run revenue-maximizing corporate rate is somewhere between 15 percent and 25 percent.

And Chris Edwards of the Cato Institute reviewed fifty years of data for industrialized nations and ascertained that lower tax rates are associated with rising revenue.

There’s also good evidence from Canada and the United Kingdom if you want country-specific examples of the relationship between corporate tax rates and corporate tax revenue.

By the way, even left-leaning multilateral bureaucracies such as the International Monetary Fund and the Organization for Economic Cooperation and Development have published research showing the same thing.

And what about the debate over whether the “rich” benefit?

That issue is a red herring. Yes, shareholders of companies, on average, have higher incomes, and they will benefit if the rate is reduced, but I’ve never been motivated by animosity against those with more money (assuming they earned their money rather than mooching off the government).

What does get my juices flowing, however, is growth. And if we can get more dynamism in the economy, that translates into more jobs and higher income.

A new report from the Council of Economic Advisers estimates the potential benefit for ordinary people.

Reducing the statutory federal corporate tax rate from 35 to 20 percent would, the analysis below suggests, increase average household income in the United States by, very conservatively, $4,000 annually. …Moreover, the broad range of results in the literature suggest that over a decade, this effect could be much larger.

There’s some good cross-country data showing nations with lower corporate tax rates do better.

Between 2012 and 2016, the 10 lowest corporate tax countries of the OECD had corporate tax rates 13.9 percentage points lower than the 10 highest corporate tax countries, about the same scale as the reduction currently under consideration in the U.S. The average wage growth in the low tax countries has been dramatically higher.

Here’s the accompanying chart.

As you can see, there’s a clear divergence between higher-tax and lower-tax nations. Though, given the limited time period in the chart and the fact that many other factors can impact wage growth, I’m actually more persuaded by some of the other empirical research cited in the CEA report.

Arulpalapam et al (2012) find that workers pay nearly 50 percent of the tax, while Desai et al (2007) estimate a worker share of 45 to 75 percent. Gravelle and Smetters (2006) generate a rate of 21 percent when the rate of capital mobility across countries is moderate and 73 percent when capital can flow freely, evidence that the labor incidence is likely both dynamic and positively correlated with the rate of international capital transfers. A Congressional Budget Office (CBO) study (Randolph, 2006) finds that workers bear 70 percent of the corporate income tax burden in the baseline and 59 to 91 percent in alternative specifications. In a summary study, Jensen and Mathur (2011) argue for an assumption of greater than 50 percent. …A cross-country study by Hassett and Mathur (2006) based on 65 countries and 25 years of data finds that the elasticity of worker wages in manufacturing after five years with respect to the highest marginal tax rate in a country is as low as -1.0 in some specifications, although other sets of control variables increase the elasticity to -0.3. Expanded analysis by Felix (2007) follows the Hassett and Mathur strategy, but incorporates additional control variables, including worker education levels. Felix settles on an elasticity of worker wages with respect to corporate income taxes of -0.4, at the high end of the Hassett and Mathur range. …Felix (2009) estimates an elasticity of worker wages with respect to corporate income tax rates based on variation in the marginal tax rate across U.S. states. In this case, the elasticity is substantially lower; a 1 percentage point increase in the top marginal state corporate rate reduces gross wages by 0.14 to 0.36 percent over the entire period (1977-2005) and by up to 0.45 percent for the most recent period in her data (2000-2005). …Desai et al (2007)…measure both the changes in worker wages and changes in capital income associated with corporate income tax changes. The estimated labor burden of the corporate tax rate varies from 45 to 75 percent under various specifications in the paper.

That’s a lot of jargon, so I suspect that many readers will find data from Germany and Australia to be more useful when considering how workers benefit from lower corporate rates.

P.S. While I think a lower corporate tax rate may result in more revenue over time, that’s definitely not my goal.

P.P.S. The biggest obstacle to good tax policy is the unwillingness of Republicans to impose even a modest amount of spending restraint.

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I’ve written a couple of times to explain why the deduction for state and local taxes should be eliminated as part of pro-growth tax reform.

One of my main arguments, as I pointed out at the beginning of this interview, is that Republicans are generally unwilling to finance pro-growth tax changes by restraining government spending.

And since GOPers are too timid on spending, that means “revenue offsets” are needed to finance the good provisions in tax reform (assuming the goal is to make such changes permanent).

But this second-best approach can still be very good if the right loopholes are targeted.

In other words, wiping out the deduction is a good idea as a general principle, but it’s a very good idea in today’s environment since it would produce a lot of revenue to “offset” the cost of lowering tax rates and making our awful tax system less onerous. Plus, the deduction is unfair and inconsistent with principles of good policy.

Many organization point out that generating revenues by getting rid of the state and local deduction would be a win-win situation.

The National Taxpayers Union is not a fan.

…the provision departs from principles of sound tax policy and unwisely abets the behavior of high-tax states, enabling big government.

And the Heritage Foundation doesn’t like the loophole.

The deduction for state and local taxes creates winners and losers within states. Higher-income taxpayers win; lower-income taxpayers lose.

The Tax Foundation has weighed in.

The deduction favors high-income, high-tax states like California and New York, which together receive nearly one-third of the deduction’s total value nationwide.

Along with the American Enterprise Institute.

…repealing the state and local tax deduction would be an important move toward broadening the tax base.

Americans for Tax Reform also opposes the deduction.

…this deduction actually subsidizes upper income earners in high tax states.

And the Center for Freedom and Prosperity has a fact sheet with lots of data.

…nearly all filers (~99.7%) would likely benefit from a lower rate and increased standard deduction notwithstanding the loss of SALT.

National Review rejects the loophole.

Getting rid of state-tax deductibility is…good policy. …deductions mainly benefit higher-income households. …The federal government…should not use the tax code to encourage or discourage.

But the most powerful and persuasive evidence for getting rid of the deduction is that organizations favoring higher taxes and bigger government openly admit that the loophole encourages and enables bad policy (what they would call good policy) at the state and local level. You don’t have to believe me. Here are some passages from a report by the Center for Budget and Policy Priorities.

…with this deduction, higher-income filers are more willing to support state and local taxes. …Ending the SALT deduction would strain state budgets over time by making it harder for states and localities to raise…revenues… The GOP tax plan…would threaten many states’ ability to raise…revenue.

What’s amazing is that the report openly acknowledges that the deduction overwhelmingly benefits the wealthy, something that CBPP normally doesn’t like because of their support for class-warfare taxation.

But if one’s goal is bigger government, you acquiesce to reverse class warfare when it makes life easier for tax-aholic politicians in states such as CaliforniaConnecticutIllinoisNew York, and New Jersey.

The lesson for the rest of us, though, is that if CBPP thinks this preference for the rich is worth preserving, the rest of us should want it abolished.

Let’s close with some analysis that is compelling to me. Here’s what Ronald Reagan said when he tried to eliminate this odious loophole back in the 1980s.

P.S. I still prefer the first-best option of tax reform financed by spending restraint. If Republicans simply limited federal spending so it grew by 1.96 percent per year over the next 10 years, that would enable both a balanced budget and a $3 trillion tax cut. And that’s even with static scoring!

P.P.S. Back during the debate on tax reform in the 1980s, Reagan also opposed the VAT. Helps to explain why I admire the Gipper so much.

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