What does a TRUMP presidency look like?

[grumbler]

The counterpart to lowering corporate tax rates (which I think is a good thing) is to eliminate the capital gains tax.  The rationale behind the CGT was, as I understand it, to compensate for high corporate tax rates.  Minsky would know more, though, I'd guess.*passes the baton*

[The Minsky Moment]

Grover Norquist, the human embodiment of intellectual fraud, was on CNN the other night talking about the SALT deductions, attacking the deductions as a "subsidy" of big city corruption and economic stagnation.  It is complete and utter horseshit.  The SF Bay Area is one of the highest taxed areas of the country on the state and local level, it is also one of the most (if not THE most) economically dynamic regions of the country.  The least taxed state in the union is Louisiana which is not exactly free of corruption, to put it lightly.

That's not an anomaly - there's a pretty decent correlation between state and local taxation and higher levels of human and physical capital - not surprising since good chunks of state and local budgets are dedicated to education and transport.  The "subsidy" claim is a total canard - the reality is that higher tax states tend to send more federal tax to Washington than they receive back in federal spending.  New jersey for example, historically gets back about 70 cents its revenue for every dollar sent by its resident in federal taxes - the elimination of the SALT deductions will make this even worse. 

The Norquist zealots are pretty clear about the anti-SALT agenda - the point is to put pressure states that choose to use the tax system to direct investment in their own physical or human capital.  This is heresy to the libertarian purist crowd who want to see all taxes go down.  It makes sense if you think that what America needs is to look more like Louisiana and Alabama and less like California and the northeast corridor.  It is grist in the mill for the cultural warrior crowd on the right, but like much of the Trump agenda, it is economic self-flagellation.

[Admiral Yi]

Grover Norquist, the human embodiment of intellectual fraud, was on CNN the other night talking about the SALT deductions, attacking the deductions as a "subsidy" of big city corruption and economic stagnation.  It is complete and utter horseshit.  The SF Bay Area is one of the highest taxed areas of the country on the state and local level, it is also one of the most (if not THE most) economically dynamic regions of the country.  The least taxed state in the union is Louisiana which is not exactly free of corruption, to put it lightly.

That's not an anomaly - there's a pretty decent correlation between state and local taxation and higher levels of human and physical capital - not surprising since good chunks of state and local budgets are dedicated to education and transport.  The "subsidy" claim is a total canard - the reality is that higher tax states tend to send more federal tax to Washington than they receive back in federal spending.  New jersey for example, historically gets back about 70 cents its revenue for every dollar sent by its resident in federal taxes - the elimination of the SALT deductions will make this even worse. 

The Norquist zealots are pretty clear about the anti-SALT agenda - the point is to put pressure states that choose to use the tax system to direct investment in their own physical or human capital.  This is heresy to the libertarian purist crowd who want to see all taxes go down.  It makes sense if you think that what America needs is to look more like Louisiana and Alabama and less like California and the northeast corridor.  It is grist in the mill for the cultural warrior crowd on the right, but like much of the Trump agenda, it is economic self-flagellation.

I agree that's a horseshit argument.  I think a much better argument is to ask what is the rationale for the federal government to subsidize high tax jurisdictions.

[The Minsky Moment]

The counterpart to lowering corporate tax rates (which I think is a good thing) is to eliminate the capital gains tax.  The rationale behind the CGT was, as I understand it, to compensate for high corporate tax rates.  Minsky would know more, though, I'd guess.*passes the baton*

The justification IMO for capital gains taxation is that some taxpayers may be able to arrange their affairs to recharacterize ordinary income as cap gains or the other way around, and thus a tax regime which treats the two kinds of gains differently is open to gaming.  One's attitude to cap gains taxation may depend on how much one sees the potential for manipulation as a problem.

The decision to move to a territorial system of corp taxation IMO is the driver of the push to lower corp taxation.  Once you make the decision to limit corp taxation to activity inside the country, some degree of tax competition is inevitable.  There are advantages and justifications to territorial only taxation and to lowering corporate level tax.  It may simplify the system (or may not depending on how done).  But realistically, it isn't going to have the big economic effects that its more aggressive boosters are claiming.

[The Minsky Moment]

[  I think a much better argument is to ask what is the rationale for the federal government to subsidize high tax jurisdictions.

It's a false premise, particularly when the higher tax states are net contributors to the budget.  It's a weird sort of subsidy where the subsidized put in more and get less back than the non-subsidized.

One might as well accuse the government of subsidizing high labor utilizing companies because it permits a deduction for wages paid.

[The Minsky Moment]

The argument against lowering the corp rate is that the House plan already provides for expensing new investment.  Once you do that, the corporate tax simply becomes in essence a tax on passive cash flow.  A company that continually reinvests can minimize or avoid tax, one that sits back and collect monopoly or oliogopoly rents doesn't.  The positive incentive effect of investment tax break is proportional to the tax rate on the residual cash flow after new investment.  Cut deeply into the rate and you cut into the incentive effect.

[Admiral Yi]

It's a false premise, particularly when the higher tax states are net contributors to the budget.  It's a weird sort of subsidy where the subsidized put in more and get less back than the non-subsidized.

One might as well accuse the government of subsidizing high labor utilizing companies because it permits a deduction for wages paid.

I disagree.  They are net contributors based on income (and other things such as resident retirees, federal and military employees, etc.), not as a function of the level of local taxation.  Deductions for mortgage interest, health insurance, etc. act as subsides for those types of transactions regardless of the net federal tax contribution of the state the individual lives in.  The same is true for more transparent subsidies like agriculture.

[The Minsky Moment]

I disagree.  They are net contributors based on income (and other things such as resident retirees, federal and military employees, etc.), not as a function of the level of local taxation.

The unstated assumption in your premise is that local/regional levels of income and taxation are entirely uncorrelated.  It's a false assumption.  State and local spending tends to be highly concentrated in sectors that enhance physical and human capital and contribute to higher levels of income.  California puts resources into a high quality university system.  The NE corridor spends money to build and maintain the infrastructure required to sustain a highly productive dense urban cluster.  You have to pay to play. 

On a political level, remember Mitt's takers and makers?  That was a misleading narrative because it presumed a politics of open class warfare that doesn't and never existed in America.  But what we are witnessing now is the emergency of a politics of regional "takers and makers", where the states that are net recipients of federal largesse exploit the US federal structure and electoral structure to foist ever greater relative tax burdens on the net contributor states.  In Europe those kinds of imbalances - real and perceived - have fomented regionalist agitation from Barcelona to Brexit, from the Italian Northern League to the Flemish nationalists.  The fact that the same political coalition is also pursuing a rhetorical narrative portraying the regional "makers" as wicked coastal elites doesn't help.

[Eddie Teach]

Why shouldn't rich states pay a higher share, just as rich citizens do? It's funny seeing progressives from high tax states complain about not getting a federal tax cut because they paid local taxes for local services.

[Admiral Yi]

The unstated assumption in your premise is that local/regional levels of income and taxation are entirely uncorrelated.  It's a false assumption.  State and local spending tends to be highly concentrated in sectors that enhance physical and human capital and contribute to higher levels of income.  California puts resources into a high quality university system.  The NE corridor spends money to build and maintain the infrastructure required to sustain a highly productive dense urban cluster.  You have to pay to play. 

On a political level, remember Mitt's takers and makers?  That was a misleading narrative because it presumed a politics of open class warfare that doesn't and never existed in America.  But what we are witnessing now is the emergency of a politics of regional "takers and makers", where the states that are net recipients of federal largesse exploit the US federal structure and electoral structure to foist ever greater relative tax burdens on the net contributor states.  In Europe those kinds of imbalances - real and perceived - have fomented regionalist agitation from Barcelona to Brexit, from the Italian Northern League to the Flemish nationalists.  The fact that the same political coalition is also pursuing a rhetorical narrative portraying the regional "makers" as wicked coastal elites doesn't help.

Now you are implicitly conceding that deductability *does* in fact subsidize local spending, but advancing a new argument that the subsidy is in fact worthwhile, because of the additional income, and hence the higher federal tax revenues, it generates.   I like this argument better, but I still see some problems, specifically in determining causality.  A large part of urban spending goes to crime prevention and social programs.  These don't generate higher incomes, they mitigate the consequences that come with population density.  Not all urban centers are productive either.  Take a look at any rust belt shithole.  It would be very hard to ascribe the success of NY finance to the NY state education system, or the success of Silicon Valley to Berkeley or Cal State Fullerton.

[Valmy]

In this time of high deficits endangering the future of the country I don't think there is much room for deductions and tax breaks. Uncle Sam needs every penny.

[Jacob]

Why shouldn't rich states pay a higher share, just as rich citizens do? It's funny seeing progressives from high tax states complain about not getting a federal tax cut because they paid local taxes for local services.

I thought the rich states pay higher shares, both absolutely and proportionally.

[Eddie Teach]

They probably do, just not as high a proportion as they would without state/local taxes being deducted.

Same argument could be used for lowering top bracket- "but they still pay more!"

[dps]

In this time of high deficits endangering the future of the country I don't think there is much room for deductions and tax breaks. Uncle Sam needs every penny.

Personally, I'd like to see the standard deduction raised (which the proposed tax bill will, though not as much as I'd like) and most, if not all deductions eliminated.  I suspect that would actually be fairly close to revenue-neutral, while benefitting those with lower incomes the most.  What say you, Minsky?

[Jacob]

Looks like Virginia went solidly Dem.