February 3, 2017

Here are some tax cuts that would actually hurt the wealthy

Filed under: Economics, Politics, USA — Tags: , , , , — Nicholas @ 03:00

Last week, Kevin Williamson outlined a couple of tax reforms that really would make a difference, being both more fair to all taxpayers and appealing (in theory) to both left and right:

Congressional Republicans and the Trump administration will disagree about many things, but it is rare to find a Republican of almost any description who will turn his nose up at a tax cut of almost any description. As Robert Novak put it: “God put the Republican Party on earth to cut taxes. If they don’t do that, they have no useful function.” And tax cuts are coming. But there are two proposals in circulation that would constitute significant tax increases — tax increases that would fall most heavily on upper-income Americans in high-tax progressive states such as California and New York. The first is a proposal to reduce or eliminate the mortgage-interest deduction, a tax subsidy that makes having a big mortgage on an expensive house relatively attractive to affluent households; the second is to reduce or eliminate the deduction for state income taxes, a provision that takes some of the sting out of living in a high-tax jurisdiction such as New York City (which has both state and local income taxes) or California, home to the nation’s highest state-tax burden.

Do not hold your breath waiting for the inequality warriors to congratulate Republicans for proposing these significant tax increases on the rich. Expect lamentations and the rending of garments, instead.

Slate economics editor Jordan Weissmann, who is not exactly Grover Norquist on the question of taxes, describes the mortgage-interest deduction as “an objectively horrible piece of public policy that should be reformed,” and it is difficult to disagree with him. It distorts the housing market in favor of higher prices, which is great if you are old and rich and own a house or three like Bernie Sanders but stinks if you are young and strapped and looking to buy a house. It encourages buyers to take on more debt at higher interest rates than they probably would without the deduction, and almost all of the benefits go to well-off households in the top income quintile. It is the classic example of upper-class welfare. And it has a nasty side, too: Those sky-high housing prices in California’s most desirable communities serve roughly the same function as the walls of a gated community or the tuition at Choate: keeping the riff-raff out. Pacific Heights is famous for its diversity: They have all kinds of multimillionaires there.

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