By Robert Donachie
Republicans’ proposals to reform the U.S. tax code have revealed the exorbitant tax rates Democratic-controlled states have saddled on their citizens, and the Democrats’ response is making them look clueless.
House and Senate Republicans bills, respectively, slash the corporate tax rates, reduce the number of tax brackets and individual tax rates, lower tax rates on the majority of American small businesses, incentivize capital investment through short-term expensing, increase tax credits for having children (which Democratic senators voted against) and include a number of other arguably positive features.
Democrats in elected office and the media are doing everything within their power to sow disdain for the Republican reform effort in the hearts of American voters, arguing that GOP lawmakers are giving concessions to the wealthy at the expense of middle-class taxpayers and are working to increase the federal deficit — a complete diversion from conservative orthodoxy.
The New York Times editorial board openly lobbied its readers and the public days before the Senate voted to contact their senators and rail against Senate Republicans’ bill. The Times opinion page specifically called out the Senate’s bill “$1.4 trillion” increase to the federal deficit — the amount the Congressional Budget Office (CBO) predicts the deficit to rise in ten years.
The newfound concern among Democrats for the fiscal state of the nation is interesting, given that Sen. Bernie Sanders of Vermont, one of the party’s leading candidates for the White House in 2016, proposed a budget that would have added $21 trillion to the nation’s debt over the next decade.
Former Secretary of State Hillary Clinton’s proposed plans for tax reform and the federal budget were expected to shrink long-run GDP roughly 1 percent and marginally increase the federal deficit.
The lamentations of Democrats is also not all that surprising when one examines the states deemed to be “winners” and “losers” from the GOP bills. Democratic-controlled states are the ones most likely to get hit the hardest from the bill, but not because of the changes to the tax code but because of high tax rates and regulations the states’ legislators have imposed over the course of decades.
California and New York are the shining examples Democrats are using to point out the ills that would befall states if Congress approves the respective bills in conference, which is expected to occur as early as this week.
The New York Times wrote a piece in late November detailing the various tax credits, tax-exempt bonds and deductions Californian citizens and small businesses would lose if Congress passed the Senate’s tax reform bill as it stands. These credits and deductions are indeed vital for many families and small businesses. Without the assistance, many individuals and business owners could not afford to stay in California.
The state’s two most prominent Democratic political figures — House Minority leader Nancy Pelosi and Sen. Kamala Harris — came out swinging against the tax bill. Pelosi likened the tax bill to “Armageddon,” while Harris called her colleagues bill “a victory for corporations and the top 1% of Americans, not teachers, not seniors, and certainly not the middle class.”
California Gov. Jerry Brown called the bill “evil in the extreme.”
What the Times, Pelosi, Harris and Brown fail to address in their criticisms are the underlying reasons that Californians need the government’s financial assistance to live and run a business within the state. The state and local community legislators have instilled stringent, often prohibitory, zoning and environmental regulations that have retarded the building of low-income housing, caused hundreds of thousands to flee the state and housing prices to skyrocket.
California-state lawmakers ultimately have control over a number of their state taxes, like personal income, sales, property and other state-specific taxes. Taxpayers pay the majority of their tax burdens not to the federal government, but to their own state and local governments. In California, roughly 11 percent of the income generated in the state goes towards paying taxes, adding up to roughly $5,230 per capita.
California lost 109,000 more people than it gained in 2016, while comparatively low-tax and cost of living states, like Texas and Florida, saw a 126,000 and 207,000 net uptick in population.
The Times wrote another story only days after the Senate’s tax bill passed that launched into a surprising defense against raising taxes on wealthy New Yorkers.
The primary complaint the Times raised was that Republicans are stripping local and state income tax deductions, which would cause rich New Yorkers to pay the full brunt of local taxes on the residents of New York City. Many of those wealthy earners have lavish jobs on Wall Street or within the borders of Manhattan and were the targets of Democratic candidates only one year ago on the presidential campaign trail.
New York, like California, is a state run by Democrats and one that taxes its citizens at a higher rate than any other state in the nation. The state’s combined state and local income tax burden tops California’s at 12.7 percent. That amounts to roughly $6,993.42 per New York taxpayer.
Senate Minority leader Chuck Schumer of New York called his colleagues’ bill the “heights of hypocrisy,” while the mayor of his hometown of New York City is trying to levy a 14 percent tax increase to pay for improvements to the city’s subway system.
New York City Mayor Bill de Blasio also faces between a $65 and $142 billion shortfall on the its pension obligations, which the city does not expect to pay off for at least another 15 years.
If the goal of Democrats is to ensure their constituents are getting a fair shake from the Republicans tax reform push, it would seem that state and local tax and regulatory reform could help them achieve those ends.
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