Wherein Patterico Agrees with — Charlie Rangel??
It’s frightening to realize you agree with Charlie Rangel about almost anything. But I completely agree with the Rangel-Angelides op-ed in this morning’s L.A. Times, titled The tax plan that cheats California:
MOST AMERICANS think tax reform should be about fairness and simplification. But for the right-wing ideologues who dominate tax policy decisions in the Bush administration, the goals are different. They want to shift the tax burden from the wealthy to the middle class and put pressure on states such as California and New York to shrink critical public services. The recommendations by President Bush’s Advisory Panel on Federal Tax Reform to eliminate the federal income tax deduction for state and local taxes, and to cap the deduction for home mortgage interest, are a big step in that direction.
Ignoring the rhetoric about “right-wing ideologues,” I think this is absolutely right. Make no mistake: no matter what you call it, this is a tax hike. What’s more, it hits citizens of California especially hard:
The Bush tax panel’s proposal would be especially hard on California and New York. Currently, one in every four Californians filing a federal tax return deducts their state income tax and property tax, as do an even greater percentage of New Yorkers. Eliminating the deduction would add an average of $2,200 to each of those Californian’s federal tax bills and $2,774 to each New Yorker’s tax bills. This amounts to more than $23 billion in new federal taxes that would leave California and New York and end up in Washington.
. . . .
The Bush tax panel has also taken aim at states such as New York and California with its proposal to cap the deduction for mortgage interest. The $411,704 cap is well below California’s median price, $568,890, for a single-family home. Around New York City, the cap would also be well below housing costs for middle-class families. But Texans purchasing a median-priced house would still be able to deduct all their mortgage interest. That’s unfair.
What’s more, this plan will cause countless foreclosures of homes owned by households that count on the deduction to make their payments. That will drive real estate prices down. The net effect: this plan will take a huge real-estate bubble and rudely pop it, rather than allowing it to gradually deflate.
As if we here in California aren’t getting screwed enough by the toll that illegal immigrants take on our economy, straining our health care and education systems. And now this.
These tax proposals from the Bush tax panel are a double-barreled blast aimed squarely at the middle class, especially in California and New York, which are powerhouses of the U.S. economy. The citizens and elected leaders of California and New York, including the states’ governors, must quickly and strongly oppose the tax panel’s ill-conceived proposals.
I absolutely agree — and this issue transcends partisan politics for me. At a time when Republicans have spent like tax money is going out of style, I will not tolerate a tax hike that slaps middle-class Californians like myself the hardest. I will vote for any Democrat opposing this plan who runs against any Republican that supports it.
And you can bet I’m not the only middle-class Californian who feels this way.
CA and NY are Democrat strongholds. Why shouldn’t the Republicans stick it to them?
And why should people in low tax states end up subsidizing people in high-tax states?
This sounds like excelent politics to me. And excellent morality / ethics, too.
Actions have consequences. time for the Democrat voters to have their noses rubbed in that.
Greg
Greg D (dfbcf3) — 11/30/2005 @ 8:10 pmThe end of Federal deductability for
state and local income taxes is long
overdue. After all, why should
residents of states which don’thave a
state income tax (e.g. Texas, Florida)
subsidize residents of the 40+ states
which do have state income taxes?
Mortgage interest deductability is
Justice Frankfurter (2dcd84) — 11/30/2005 @ 8:36 pmeven more vile, and directly exploits
the poor, who rent. And since the
median California home (in the latest
report) sells for $568,890, I have no
sympathy whatsoever for the whines
of the bourgeoisie who suddenly feel
“cheated” out of their deductability.
Mortgage interest deductability these
days is a subsidy that not only
benefits homeowners, but benefits the
richest homeowners the most. Worse, it
has boosted real estate prices into
the stratosphere. If interest deductability
is abolished, a lot of people are going to figure
out that they really couldn’t afford
to buy that much house after all–and
it will serve them right. They should
speculate with their own money, not their
neighbors’.
It would be nice if these comments are just a little warning, to get speculators out of the California housing market and help deflate prices.
Just recognize that these tax reforms are not what most Republicans wanted, which is more wholesale reform.
Still, California and New York City need to allow the construction of more housing, and allow rents to be charged that will encourage people to build.
Greg (062581) — 11/30/2005 @ 8:38 pmNo way, this deduction is simply a 40% or so federal subsidy to states with high income tax rates. Essentially, it penalizes states that work hard to keep their own income taxation down.
It needs to go.
Angry Clam (a7c6b1) — 11/30/2005 @ 8:41 pmWell, it penalizes Washington State too… and you can’t say they’re a state working hard to keep taxes down and keep a straight face. We don’t have an income tax – but only because our state constitution forbids that outright.
It isn’t a tax increase if your taxes _pre_credit_ drop by $2200 at the same time that the $2200 credit is revoked. It isn’t clear how much one’s taxes would _drop_ in the first place. A prerequisite for the conclusion.
Al (00c56b) — 11/30/2005 @ 9:03 pmRegardless of the politics or morality of the proposal, the fact remains the it is a drastic change of the rules that will negatively impact millions of hard working Americans. Many people, including myself, have made important financial decisions based upon the current tax code and its impact on our finacial well-being. The stability of the American economy rests in the predictability and continuity of the power of our government. Unlike in a nationalized economy, people are willing to risk their money knowing that the government won’t arbirarily change the law or apply it differently to different people. This was the core of Hayek’s explanation for the dominance of free markets over planned economies.
I understand the concerns of those in other states that see the deductions as subsidies to the big state residents. However, every study I’ve seen shows states like California and New York send far more to Washington than they get back (CA gets about 70 cents on the dollar). This is due to the fact the CA and NY are also high income states. Even with the deductions, we pay higher per capita taxes than most states.
If you want to remove the deductions and head to a flat tax for idealogical reasons, your argument is much stronger. However, those of us who have made major financial decisions in good faith should have the option of being grandfathered using the existing system.
Jeff (428193) — 11/30/2005 @ 10:06 pmI understand the concerns of those in other states that see the deductions as subsidies to the big state residents. However, every study I’ve seen shows states like California and New York send far more to Washington than they get back (CA gets about 70 cents on the dollar). This is due to the fact the CA and NY are also high income states. Even with the deductions, we pay higher per capita taxes than most states.
Precisely — and as I said in the post, we here in California also deserve federal action on immigration and don’t get it, which forces us to spend local tax money to take care of a problem that is a federal responsibility.
If Bush wants to say “f–k you” to all Californians, then he is saying “f–k you” to me, and I will respond accordingly.
Patterico (4e4b70) — 11/30/2005 @ 10:09 pmYes, but the article, or at least the portion you quote, doesn’t mention the other side to this: given a few years and the middle class is sitting in alternative-minimum-tax land, where there are very limited deductions anyway. Part of the reform bundle is to eliminate AMT.
The real reform, though, would be to eliminate the incredibly intrusive and distorting income tax entirely. It’s hard to determine just how badly the income tax’s necessary intrusions bend the Bill of Rights, but Form 1040 is one of the few places where a fifth amendment claim isn’t supported.
Kevin Murphy (6a7945) — 12/1/2005 @ 12:05 amPatterico.
I understand this affects you personally, so maybe its hard for you to see this for what it is.
The deduction for state income taxes amounts to a direct transfer of federal dollars to the state. It is a “go forth and tax for free” card. In my state (Texas) we also have immigrant problems but we do not have an income tax. Who is better off, you in a state that can tax its citizens with impunity knowing the feds will underwrite it or we Texans with no hidden subsidy?
So while California does have an immigrant problem, it also has a hidden cash cow that funds its state programs. If you’re going to complain about lack of federal support in the immigration area isn’t it then only honest to admit the feds are underwriting the state budget? Next time they are moaning about the amount of federal funds they get ask if they have added in the amount they get in tax subsidy from this deduction – is it not the same as a direct payment?
Why should poor folks in Laredo pay for the Feds to reimburse taxes to people in million dollar condos in San Fran so they can have their homeless give-away programs without facing the real cost? This sort of hidden subsidy is part of the reason states do not have to submit to spending discipline. I’d suggest you push for abolition of Ca’s state income tax – tell ’em they can fund the state through property and sales taxes like a lot of other states.
Dwilkers (a1687a) — 12/1/2005 @ 2:29 amYou’re such a WHINER I’d like to see your taxes rise just to hear your howls of anguish, but unfortunately I am a conservative so of course I am against any form of increase in taxation on anything or anyone. Increased taxes is just a way to increase government, steal from workers pay checks and buy votes for some politician or reward political factions. It confiscates private property and converts it to the use of politicians. Rarely is there any net gain to the economic well being of the avereage american, rather it is just a wealth transfer from one interest group to another–a political spoils system. But if there is a tax increase, I would prefer that a WHINER’S TAX be instituted. This of course would be terrible financial burden on you Patterico, but so be it.
john (fb6a52) — 12/1/2005 @ 2:30 amI think its also important to understand that what they are doing is trying to reform the tax system. And let’s face it, the reforms aren’t likely to pass are they?
Bush gets no credit for this but I well remember that he campaigned on government reform in 2000. Among other things, including the tax system, he wanted to reform the military which was still at that time in a cold war posture, with massive land armies in Europe and 30,000 nukes on hair trigger. Remember his statement that he would cut nukes to 1,500, unilaterally if necessary and leave the ABM treaty? He did that, and they’ve done a good job restructuring the military. Of course, there’s the little matter of hot wars in 2 ME countries, so nobody notices what they’ve done.
The tax issue is similar. As is pointed out up thread the mortgage deduction is evolving into little more than a subsidy for rich folks to write off interest on what 99% of us would call mansions. It would actually cost me more money to file using my mortgage interest as a deduction than it does using the standard deduction.
Now, in the case of mortgage interest, there is a case to be made that a properly structured interest deduction would at least contribute to a societal goal, IE, home ownership. Much as child deductions contribute to an important (or so thought by many) societal goal, IE, stable families raising children.
It is however unclear to me what underwriting specific types of state tax programs to the exclusion of others does to further any societal goal. Think about it for a minute – isn’t the federal government almost forcing states to enact income taxes with this subsidy?
Dwilkers (a1687a) — 12/1/2005 @ 2:48 amThe democrats should like this change. It hits wealthier folks, not poorer folks. Second homes are hit most and the tax credit shields lower income families.
Its perfect policy for them to support. Funny they won’t though, guess that’s what a limosine liberal is.
JMcNamera (010103) — 12/1/2005 @ 3:41 amSpeaking as the lone Republican in Chicago and a newer single family homeowner, the federal subsidy of mortgage companies and local government is appalling. Property taxes have gone crazy. Mine are over $9,000 annually. Up 100% in 5 years. State Income tax is 3%. Add the interest of $500,000 mortgage and our deductions are more than poverty level wages for a family of four.
What should be a hue and cry about the inefficiency, corruption at the city, county and stare level is muted, because everyone loves their deductions. No one sees the costs hurting them 100%.
My family is looking at the AMT square in the face. Put me in the camp of a flat tax no deductions. I can better support or protest all levels of government if everyone knows the costs of each level of government. The deductions have created a huge industry (tax accounting)that does nothing to create more productivity and hides the inefficiency of government.
That is why I call myself Conservative as opposed to Republican most of the time. I will support a Conservative Democrat over a spending Republican everytime. Too few opportunities for my liking, but I always look.
Jeff (f64ef6) — 12/1/2005 @ 6:08 am“Eliminating the deduction would add an average of $2,200 to each of those Californian’s federal tax bills and $2,774 to each New Yorker’s tax bills. This amounts to more than $23 billion in new federal taxes that would leave California and New York and end up in Washington.”
That, of course, is nonsense unless you assume that any changed tax system would not be overall revenue neutral. New York and California taxpayers would only have a increased overall federal tax payment to the degree they disproportionately benefit from the deduction, and would not disproportionately benefit from other allowed deductions.
They probably would pay more, but certainly not the gross amounts posted.
John Lederer (3a6d9c) — 12/1/2005 @ 9:03 amPatterico joins the Dark Side
But there are good reasons for this tax hike beyond the fact that it makes the tax code more fair. If the Republicans can pass this change, then it will eliminate a lot of the resistence against the flat tax.
Doc Rampage (59ce3a) — 12/1/2005 @ 10:52 amI agree with you Patterico, this is a slap upside the head to Californians and those unfortunate to live in Blue States generally.
Interesting about the Home Mortgage Interest Deduction is that most people think it is “unfair” because renters are at a disadvantage. This is an untruth. Even under the new plan a landlord would be able to fully deduct interest on a mortgage on a rented property. The home mortgage deduction is necessary to avoid unfairly benefitting rental property. No doubt, at least part of that tax savings is passed on to renters through increased rental competition.
Joel B. (31d860) — 12/1/2005 @ 11:06 amIf income is to be taxed, then all income should be taxed, without any deduction or exclusion, and at only one rate. Pure flat tax — everything, including SS benefits, welfare benefits, your kid’s weekly allowance, whatever (well, maybe not that). And mandate the flat tax by constitutional amendment, to remove the temptation to bribe voters with the promise of the keys to the treasury. That would bring near-immediate fiscal responsibility to government: taxpayers used to paying for services with OPM (i.e., other people’s money) would no longer be able to do so (and include in that group those who are convinced they’re using OPM, even if that’s not actually what’s happening — that includes most middle class taxpayers who believe the lie that “progressive” taxation works to their advantage). We would find out very soon which governmental programs are important, rather than having to live with a whole bunch that are deemed worthwhile only as long as someone else bears the lion’s share of the cost.
TNugent (6128b4) — 12/1/2005 @ 11:24 amThe Feds should tax each State, per capita based on population, and leave each state free to determine how it will raise the money, be it thru flat tax, sales tax or whatever.
Any objections?
ras (f9de13) — 12/1/2005 @ 5:55 pmHas any Californian at anytime ever thought they shouldn’t being paying taxes in the amounts they pay to the state?
Well of course some have! My question is, if you are dumb enough to pay the taxes you pay to California government then why should you be able to pawn off your stupidity on the rest of us by writting off California taxes on your federal income tax form?
Do yourselves a favor, quit paying the taxes demanded of you by the state of California and by the county and local extorition artists…
russ (ee21cb) — 12/2/2005 @ 4:26 amThe Taxman’s Motto:
From those who have much, more will be taken, and from those who have little, yea, even that shall be taken away.
Black Jack (ee9fe2) — 12/2/2005 @ 8:52 amYep, it’s a f*ck you from Bush to CA and NY.
Why not? It’s not like either of those states are going to vote Republican any time soon.
Red States matter. Purple states matter. Blue states? Screw them.
Greg D (dfbcf3) — 12/5/2005 @ 7:00 pmOkay. So, as a resident of one of these states, my response is: f–k Bush.
Patterico (806687) — 12/5/2005 @ 7:06 pmSo how, exactly, do you convince the majority of people in states like California and New York to embrace tax reform? Why … let taxes increase until the people finally say “ENOUGH” and vote for candidates who support lower taxes.
I have no idea if the Bush administration is motivated to use a method such as this, but I don’t care if it accomplishes the goal in the long run. Red state folks are fed up with high taxes. New Yorkers, Californians and all those blue staters need to see the light.
DRJ (15ed57) — 12/5/2005 @ 8:00 pmSo how, exactly, do you convince the majority of people in states like California and New York to embrace tax reform? Why … let taxes increase . . .
And how do you cut deficits? Why . . . increase deficits like mad!
Bush is doing great on both fronts.
Patterico (806687) — 12/5/2005 @ 8:05 pmPatterico, your statement about the Bush deficit is a great rhetorical device – and frankly it’s a crying shame that GWB is such a lackluster conservative – but I stand by my point. How, exactly, do you convince people that lowering taxes is a good idea when any increase in state taxes is offset against federal taxes?
As things stand in places like California and New York, the average taxpayer sees no benefit in lowering taxes because if he isn’t taxed at the local level, he will be taxed at the national level. Most people would rather see their taxes spent at the local level if their only choice is where (as opposed to whether) the taxes will be collected and spent. In the blue states, it appears the only way to get people to see the benefit of opposing taxation is to find their tolerance point.
DRJ (15ed57) — 12/5/2005 @ 10:18 pm