A very scary headline
This Bloomberg headline doesn’t look very promising:
SALT-Cap Repeal Gains Momentum With House Bipartisan Caucus
It”s hard to think of any plausible legislative action that would be worse—a huge tax cut going mostly to people making over $1,000,000/ year, which also somehow makes the economy less efficient. Oh, and it would give me headaches (not that anyone cares), as I’d have to go back to itemizing all my deductions instead of taking the standard deduction. And it would encourage state and local governments to spend money on wasteful boondoggles that don’t make sense on a cost/benefit basis.
Repeal of the SALT cap would undo one of the few helpful policy reforms of the Trump era. It would also confirm that the Biden administration is not serious about trying to improve the economy.
Eventually, the lost revenue would have to be recouped somewhere else. I doubt it will be through spending cuts; more likely Biden will have to raise taxes on average people. How long before they start discussing a VAT?
Of course some progressives will say that no one has to pay. We’ll just keep borrowing money for this and all the other shiny new toys coming out of Congress. No one has to pay for any of it.
Tags:
15. April 2021 at 18:07
‘Of course some progressives will say that no one has to pay. We’ll just keep borrowing money for this and all the other shiny new toys coming out of Congress. No one has to pay for any of it.’
What are are you talking about? No need to borrow the money just create it with a key stroke !
15. April 2021 at 18:25
“ It would also confirm that the Biden administration is not serious about trying to improve the economy.”
Haven’t officials from the Biden administration been open and honest that their actions regarding the economy are based upon political concerns, not economic ones? I feel like news like this lends more credence to folks worried about inflation, as supply shocks and overall inefficiency in the economy seem to be the most difficult situations to face a central bank, because no matter what they do they are the bad guys (either they tighten policy to reduce economic activity and cause a recession, or they try to stave off a recession and let inflation rise).
15. April 2021 at 20:43
I’m biased because I benefit. But if income tax is supposed to tax future consumption, then why tax state taxes which are not directly consumed by the tax payer. I’d rather have higher rates and deduct state taxes than lower rates and no reduction.
16. April 2021 at 05:19
“ It would also confirm that the Biden administration is not serious about trying to improve the economy.”
Also not serious about reducing wealth inequality.
16. April 2021 at 05:47
When you say mildly controversial or non-obvious things like “And it would encourage state and local governments to spend money on wasteful boondoggles that don’t make sense on a cost/benefit basis.” could you please include some kind of substantiation?
Even if I wanted to parrot your line in a casual conversation I could not as any follow up question would reveal that I have no idea what I am talking about.
16. April 2021 at 08:01
Ted, The problem is that it provides a 40% subsidy to local spending, which is distortionary.
Scott, States know that if they spend a billion dollars on a project, 40% of the cost will be borne by the federal government, as their taxpayers will learn a deduction on the extra spending/taxes.
16. April 2021 at 08:30
Scott,
Living in a state that is in the process of transitioning to blue, the elimination of SALT hurt me. My taxes definitely went up as a result of capping those deductions, but I still have to itemize because the standard deduction is still less.
However, I totally agree with you. This was the single best policy of the Trump era. He did it to punish blue states, which is sad, but it’s good policy.
16. April 2021 at 11:02
Well, at least you lowered the boom on Biden—-but I don’t necessarily agree with your view. Having said that, our tax structure overall is so bad and corrupt I cannot really be too heavy on criticizing your perspective.
As we know, our tax structure is designed to favor certain groups, which can shift over time. The amount of spending we do is absurd—but when we combine it with corruption as to who benefits it is exasperating.
I accept we have to live with a certain amount of corruption because it is impossible to completely stop it.
SALT is less the issue to me—as it is the whole picture that creates the distortions. Assuming SALT never passes it should be the case that States like CA, NJ, NY etc., will have to adapt—as they are losing people out right. But I look at NJ with its 50% funded pensions for public employees, they effectively have “lowered Taxes” by invisibly borrowing —they will have to seek bailouts—.
But we seem to keep electing Goldman guys as governors—or losers like Christie and Whitman—-and the mafia residuals are still around along with the public unions. It is a mess.
16. April 2021 at 13:49
It’s nerve-racking trying to trust the process, but the Biden White House certainly hasn’t given out warm fuzzies wrt SALT-Cap repeal. And for all the wrong reasons, of course, AOC is also against.
16. April 2021 at 17:14
How long before they start discussing a VAT?
I thought you favor consumption taxes.
16. April 2021 at 19:06
Michael, I have no idea what point you are trying to make.
D.O. Instead of the income tax, not in addition.
16. April 2021 at 19:35
D.O. I should add that I was making a sarcastic reference to the fact that they’ll probably make up for this tax cut for the rich with higher taxes on the middle class.
16. April 2021 at 21:49
Much ado about nothing, but Sumner indirectly just told us that, in retirement, where generally retirees make 60% of their last few years of salary, that he’s rich enough to worry about deducting his state and local taxes, which even my 1% family doesn’t do (we take the standard deduction). Somebody got paid handsomely to teach 2D line charts to uninterested undergraduate students of economics.
16. April 2021 at 21:59
Scott,
That’s what you get for supporting Biden.
Also, “Instead of the income tax, not in addition.” is not quite accurate. If I remember correctly you have often written in favor of a tax system which includes a progressive wage tax, e.g. https://www.themoneyillusion.com/can-anyone-explain-the-proposed-border-taxsubsidy/
17. April 2021 at 07:54
I understand you were sarcastic. But there is no way a federal consumption tax will be introduced as one giagantic switch from the income tax. If it in the cards at all, it will be a small supplemental tax at first and then, when the machinery of it is established, the income tax would be progressively cut down and the consumption tax raised. I am not suggesting Biden administration plans to do anything like that.
17. April 2021 at 07:59
No, no, restore the SALT deduction. More than 50% of State and local taxes are spent on education, an investment, and an important investment. We should not burden this investment more. Look at the state budgets, they are easy to find.
17. April 2021 at 08:35
dtoh, Yes, I support a progressive wage tax (which is a consumption tax) instead of an income tax.
And I told you that Biden would be a bad president, so I was right.
But at least he’s not a fascist.
D.O. That’s not what’s happened in Europe.
Susan, States waste vast amounts of money on education; the last thing we should be trying to do is encourage them to waste even more. We need to abolish the public schools and go with much cheaper vouchers.
18. April 2021 at 03:35
I think that it is naive to believe that Biden isn’t a fascist. Biden wants the executive branch to have sweeping new powers to identify, harass, and prosecute “political extremism”. He has called for an end to “disinformation” on the media sites most frequently used by Americans.
Biden says that he wants to use the power of the state to go after political enemies and to determine how the media operates. Biden just isn’t bombastic about his fascism, unlike Trump.
18. April 2021 at 08:19
Lizard, This is what politics can do to a brain. Biden’s about as normal, boring, ordinary an American politician as I’ve encountered in my entire life. No different from all the other Dems I’ve seen over the past 50 years. Are they all fascists?
I also call for an end to misinformation on media sites, BTW. Am I a fascist?
18. April 2021 at 14:02
Scott,
I think the thinking from lots of blue state people is that they pay disproportionately in taxes to red states, since blue states earn more money. They think the blue states earn more money since they have these high-tax, progressive state regimes that boost growth, and that red states should emulate those regimes, so they get rich and blue states don’t have to subsidize them. I think that’s what drives most of the anger on the SALT deduction. I think they’re hypocritical and wrong, but from the perspective of someone from NYC or SF, it makes a lot of sense.
18. April 2021 at 14:12
Also I had this thought about high-tax systems.
If increased wealth lowers fertility, wouldn’t high tax, progressive systems actually create a eugenic(can’t think of a better word here) outcome in terms of birthrates? Since these tax systems take lots of wealth from the rich, making them dramatically poorer, and give the money to the poor, making them wealthier. Thus the rich will have relatively more kids, and the poor will have relatively less kids.
I don’t actually know if it’s real or not, but it seems to make sense given what we know about the effects of income on fertility.
18. April 2021 at 18:35
I don’t remember Obama desiring new laws to go after “domestic extremists” or wanting to have power over what is posted on social media. I don’t remember Obama’s military making support of his political opponents a bar to career advancement.
18. April 2021 at 20:55
Scott, is there any policy issue on which Biden is not more extreme than Obama and certainly Clinton? Is he not decidedly more extreme than either on many issues? He doubtless has a very boring personality, but why would we judge a politician primarily by that metric rather than their policy positions? It is entirely possible to be a boring, unremarkable fascist.
19. April 2021 at 00:20
A ‘sinner’ repents?
“Amazing from Sachs. The propaganda system works so well because no-one ever questions the deeply irrational assumptions—which emanate from the state—undergirding MSM discourse on foreign policy. It’s part of implicit deal u make if u desire MSM promotion.
https://twitter.com/medialens/status/1383056567671590913?s=20
19. April 2021 at 05:08
Scott—-it was a rant. But, my point was was SALT is one piece of of an already bad tax structure. Keeping it or eliminating it to me is not that important to me. I do not think it’s existence or lack thereof matters that much.
19. April 2021 at 08:13
This post is fearmongering.
In other news, did you hear about that new corduroy pillow?
It’s making headlines!
19. April 2021 at 10:00
Anon, I don’t believe the data shows that wealth lowers fertility.
If the blue states think they are paying too much, there are far more efficient ways of addressing that problem. Refrain from raising the corporate income tax, for instance.
Lizard, You said:
“I don’t remember Obama’s military making support of his political opponents a bar to career advancement.”
I don’t recall Biden doing that.
Mark, What issues is Biden “extreme” on? The leftists all seem to think he’s a moderate sell-out. Look at their outrage over his immigration policy.
Michael, You said:
“I do not think it’s existence or lack thereof matters that much.”
That’s because you don’t understand the issue.
28. April 2021 at 05:33
Random question since it’s FOMC day: how does the Fed say they will not rely on inflation forecasts…yet at the same time forecast that any inflation pressure will be temporary? Certainly leaves the impression that their actions are rather unscientific.