After failing in two attempts to become Speaker of the House of Representatives, Rep. Jim Jordan (R–Ohio) has reportedly offered an unexpected bargaining chip: a big tax break for wealthy Americans living predominantly in high-tax, Democratic-controlled states.
We'll soon find out whether that makes any difference: Jordan is expected to make a third attempt at securing the speakership on Friday.
Jordan is "on board" with increasing the $10,000 cap on state and local tax deductions if it will secure support for his speakership bid from some hold-out Republicans who also favor lifting or abolishing that cap, Roll Call reports. If it works out, Jordan's proposal would see the so-called "SALT cap"—shorthand for "state and local tax"—doubled to $20,000 for single tax filers and $40,000 for married couples who file taxes jointly. It is, as The Wall Street Journal notes, an obvious attempt to curry favor with Republican lawmakers from blue states like New York.
"It would be a notable endorsement from Jordan, who has led some of the House's most conservative factions that tend to oppose allowing more deductions for state and local taxes," is how Roll Call's Laura Weiss frames the surprising maneuver.
That's putting it mildly. By even putting that deal on the table, Jordan has signaled that he's willing to sell out major Republican fiscal and tax policy accomplishments to advance his career. That's not a good sign (though it would be very much in keeping with Jordan's status as the avatar for a Republican Party that increasingly has little interest in policy making or traditionally conservative principles).
It might be tempting for some libertarians to support a higher SALT cap, simply because it means larger deductions—and therefore lower taxes—for some Americans. Hey, isn't letting people keep more of their own money always a good thing?
Yes, but that's the wrong way to think about the SALT cap. If Congress felt that individuals making $100,000 (or pick any other number you'd like) ought to be paying less in taxes, it should make that the law of the land. The federal tax code should treat all federal taxpayers equally, and that means being agnostic about how much taxpayers might owe in state and local taxes. Doing otherwise is fundamentally unfair: Why should a person earning $80,000 (or, again, pick any number you'd like) in Connecticut get a tax break that isn't available to someone making the same amount of money in Florida?
Yes, that's an argument against all the tax breaks and deductions in the federal tax code—and, indeed, they are all unfair in this same way, when you get right down to it—but the SALT deduction is a particularly blunt and stupid piece of federal tax policy that serves little purpose besides subsidizing taxpayers in high tax states and hiding the burden that bigger government imposes.
If those taxpayers want to pay less, they shouldn't ask Congress for a break. They should elect different state and local officials. Failing that, they should move.
Beyond the philosophical problems, raising the SALT cap to allow for larger deductions is a fiscal misstep too. A preliminary analysis by the Tax Foundation found Jordan's plan would reduce federal tax collections by about $54 billion over the next two years.
Any policy change that significantly reduces federal revenue should come with offsetting spending reductions—and that's especially true when the federal government is running annual deficits of about $2 billion. Without cutting spending, a higher SALT cap is nothing more than a promise to borrow even more.
A smaller but still notable problem is that raising the SALT cap only cuts taxes for the wealthiest Americans in those high-tax states. The Tax Foundation's analysis points out that the benefits of raising the SALT cap flow almost entirely to households earning more than six figures. Other reviews of similar plans in the past have come to similar conclusions. And it should go without saying, but wealthy Americans who choose to live in high-tax states do not need a tax break paid for with more borrowing, which is paid for by everyone else.
Finally, selling out the SALT cap to win speakership votes amounts to a hilariously nihilist political turnabout for Jordan—and Republicans in general. Imposing the current $10,000 cap as part of the 2017 federal tax reform law was a major policy victory for the GOP. It made the federal tax code more fair and effectively undermined the SALT deduction's function as a subsidy for big government in high-tax states.
Undoing even a small portion of the Republican Party's most recent major policy win would be an ignominious way for Jordan's tenure as speaker to begin. If that's the price of getting Jordan's hand on the gavel, few Republicans should be willing to pay it.
The post Jim Jordan Is Trying To Buy the Speakership With Tax Breaks for Wealthy Residents of Blue States appeared first on Reason.com.
