Congress must not cede its authority to raise debt
Blue-state Democrats want one of the biggest-ever tax cuts — for the rich
How is this for hypocrisy? Liberals in Congress are making a big lobbying pitch for a $600 billion tax cut that would constitute one of the largest tax write-offs for the super-rich in American history.
Democrats want to repeal a feature of the Trump tax cut that capped the deduction of state and local taxes at $10,000 per filer.
The House Ways and Means Committee, under the control of Democrats, is holding hearings today to make the case for bringing back the state and local tax deduction (SALT) - because they worry that it hurts high-tax blue states. Democratic governors like Andrew Cuomo of New York have been among the loudest critics of the cap on this tax write-off, and have even called the tax change "diabolical."
But here's the problem for liberals: This tax change had almost no impact on the tax payments of working-class Americans because, under the new tax system, almost nine of ten tax filers don't itemize their deductions. Instead, they check off the box for the standard deduction - which was doubled under the new tax law. Also, most Americans don't pay state and local taxes of more than $10,000 a year.
So, then, who would benefit if we brought back this tax loophole? According to the Urban Institute/Brookings Institution Tax Policy Center, about 90 percent of the tax cut would go to the richest 5 percent of Americans. Almost 60 percent of the benefit would go to the top 1 percent.
Let's put this in dollar terms: The Democrats want to give a tax benefit to millionaires and billionaires that would reduce their average federal tax burden by $142,000 a year. The average-income American would save, at most, about $70 a year.
Where are the class-warfare warriors like Sen. Bernie Sanders (I-Vt.), Sen. Elizabeth Warren (D-Mass.) or Rep. Alexandria Ocasio-Cortez (D-N.Y.) denouncing this give-away to the rich? Why aren't they screaming from the rafters?
Unwarranted tax deductions are bad tax policy. An economically efficient tax code has a broad tax base with few special-interest loopholes, and low flat-tax rates. The left wants to raise tax rates and bring back loopholes. Uggh.
Liberals counter that it isn't fair that people living in high-tax states like California, Connecticut, Illinois, New Jersey and New York get hit harder by the Trump tax changes than those in low-tax states like Texas and Florida. But that argument makes little sense in terms of equity. Why is it fair that people in states like Tennessee or Utah should have to pay more federal tax to subsidize the high-tax states of the Northeast? New Yorkers and Californians have voted for high taxes, which is their right, but they should shoulder the burden of those taxes, not pass those on to people who don't use the schools or the welfare benefits in these states.
Liberals are also worried that high-income people are leaving the high-tax states because of the change in the tax law that caps the SALT deduction. Yes, there is some evidence this is happening, as the United Van Lines latest data shows that people are packing up and moving out of high-tax states in record numbers. They are heading to tax sanctuaries like Florida and Arizona.
Gov. Cuomo is even pouting that the soak-the-rich policies in Albany aren't working because the "rich are leaving." But why didn't the pols in these states think of that before they raised income taxes to as high as 13 percent? Didn't they realize that workers and families would vote with their feet and flee to more tax-friendly places? For years and decades the left has ridiculed the idea that high taxes change people's behavior. Now they are howling in protest because they are seeing it first-hand.
Maybe the solution is for the high-tax blue states to acknowledge that their hefty tax assessments are bleeding their states of their population and businesses, and to slash their tax rates way down. The highest tax states -- California, Connecticut, Illinois, New Jersey and New York -- have lost a net 3 million residents over the past decade to lower-tax states, according to a new study, "Rich States, Poor States," by the American Legislative Exchange Council (ALEC).
The wrong response is for Congress to create a half-trillion-dollar tax loophole for millionaires and billionaires when we are already running $1 trillion annual budget deficits.
Stephen Moore is a distinguished visiting fellow at the Heritage Foundation and an economic consultant with FreedomWorks. He served as an adviser to the 2016 Donald Trump campaign and was one of the architects of the Trump tax plan. He has authored three books with Arthur Laffer, including "Trumponomics: Inside the America First Plan to Revive Our Economy." You can follow him on Twitter @StephenMoore.