Democrats from high-tax states are campaigning against the GOP’s tax reform, but they’re in a pickle. They want to repeal the new $10,000 cap on the federal deduction for state and local taxes. Yet most Americans with tax bills that large are well off, and Democrats don’t want to be caught helping—oh, no—“the rich.”
Hence the tortuous if highly revealing argument floated last week at the Tax Policy Center, the left-leaning think tank that favors higher taxes. Howard Gleckman, a senior fellow at the tax center, writes that if Congress repealed the deduction cap, “the top 1 percent of households, those making $755,000 or more, would receive more than 56 percent of the tax cut.” So how can populist Democrats avoid looking like hypocrites?
Simple, Mr. Gleckman says: They can ignore the Tax Policy Center’s own analysis, which did not consider “what will happen to state budgets if high-income residents resist tax increases that are now less subsidized by the federal revenue code.” Did you catch that?
With the deduction capped at $10,000, residents of high-tax states must pay nearly full freight for what happens in their spendthrift capitals. That seems fair enough.
Mr. Gleckman, however, suggests that restoring the old distortion “may indirectly benefit low- and moderate-income households” by propping up state spending. “Telling that story is much more complicated for blue states,” he writes, “but it may be a more appropriate argument.” In other words, allow more deductions for the rich so states can keep taxes and spending high.
Complicated? Democrats want to repeal the $10,000 cap so that states like New Jersey can keep their sky-high taxes and delay a fiscal reckoning. That argument may not fit on a bumper sticker, but a lack of simplicity isn’t its problem.