From CEPR
I see my friend Jason Furman is jumping into the debate on efforts by states like New York to develop workarounds for the limit on the state and local tax (SALT) deduction in the Republican tax plan. Jason reminds us that the beneficiaries of the workarounds (like New York's plan to replace a portion of the state income tax with an employer-side payroll tax) are overwhelmingly higher-income taxpayers. This doesn't bother me.
As I've pointed out before, limiting the SALT deduction is not about raising income taxes on high-income people. It is about raising taxes on high-income people in progressive states.
Suppose Congress proposed to raise the income tax rate by 2.0 percentage points on income above $100k and by 4 percentage points on income over $1 million. (These are roughly the numbers we are talking about given income tax rates in New York and California.) This is a perfectly reasonable plan since these are the people who have been the big gainers in the economy over the last four decades.
But suppose this tax increase only applied to people in New York, California, Connecticut, New Jersey, and a few other states with high tax rates, which also tend to vote Democratic in presidential elections. Are we all fine with this? Of course, if we tried to undo this selective tax increase with either legislation or some clever trick, then Jason would point out how regressive this reversal would be.
His calculations would be and are right, but I don't give a damn. Making it more difficult for states to raise the taxes they need to support affordable child care, free college, expanded health care coverage, it will come from progressive social spending is bad policy. And it is especially bad policy in a context where we can expect little by way of progressive measures out of Washington any time soon.
This means if we want to see headway on quality affordable child care, free college, expanded health care coverage, it will come from states like New York and California. The Republicans quite explicitly wanted to make it more difficult for states to be able to pursue progressive policies, which is why they limited the SALT deduction. So no, I have no problems trying to reverse this cheap trick.
Since Jason raised the topic of corporate taxes, we do have an easy route to radically reduce the opportunity for tax evasion/avoidance and also the waste associated with tax accounting. Just require corporations to give us a non-voting equity stake equal to the desired tax rate. (If we want to tax corporations at a 25 percent rate, then we require corporations to give us non-voting shares equal to 25 percent of the total outstanding.)
The non-voting shares are treated just like other shares. If the company pays a $2 a share dividend to its voting shares, it also pays $2 for each of the government's shares. If it buys back 10 percent of its shares at $100 a share, it buys back 10 percent of the government's shares at $100 a share.
It's fun, easy, and gets us the money we want out of the corporate sector. Now if we could just get some folks in Washington thinking seriously about corporate tax reform.
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