Tax Reform, Tax Cuts, Boon for the Middle Class and Tax Breaks for the Rich are but some of the names being applied to describe the tax legislation Congress is currently debating!
The potential to rescind the state and local tax deduction, or SALT as it is commonly known, has many New Yorkers and residents of the other oppressively taxed states using slightly different terms to describe the potential demise of this federal tax deduction…
Unfair, economically painful and/or ‘Texas (insert no-income tax state) here we come’!
Businesses facing the resulting shortage of labor in addition to the already heavy tax burden in these states will likely start hitting the road as well.
The impact of the potential loss of tax revenue due to resident migration elsewhere would cause state and local governments in New York, using the assumption that they would never slash expenditures, needing to find new revenue sources that would increase even further the already heavy burden on those left behind.
The value of real estate would likely decline as well given the case where a lack of deductibility of property taxes exists!
Tax Reform And Political Expediency
Can the vicious-cycle of citizens and businesses fleeing followed by fee and tax hikes on those remaining do anything other than force more residents to leave, in effect perpetuating a cycle of cause and effect? Unlikely!
But for Congress, however, the need to get ‘something passed’ for Republicans and the need to get nothing passed for Democrats is pure political gamesmanship and pandering for votes in anticipation of the 2018 midterm elections.
Seemingly any impact and unintended consequences of tax reform whether the vote is yay or nay on rank and file Americans is of little concern to those who claim to do their ‘work’ in Washington, as long as they and the other politicians of their particular party affiliation are politically well-served by any result. Is it possible that members of Congress will donate part of their sexual harassment slush fund to those Americans most severely impacted by their politically motivated posturing over tax reform? But I digress!
The fact of the matter is that SALT-aside, the nations low-tax states suffer from impending pension crises and other fiscal overhangs as well. The bottom-line is that the Republicans political need to move tax reform ‘past the finish line’ and the Democrats political need to stop them may actually result in a scenario that is even more damaging to the people these Washington-dwellers purport to serve.
You and I!
An article in The New York Times written by the Manhattan Institute’s Nicole Gelinas said this concerning the Red State-Blue State argument…
‘…Texas owes $39.1 billion for pensions, but has set aside just $25 billion. Gulf states, including Florida and Louisiana, must invest in flood-protection measures. Houston voters approved new borrowing for such infrastructure this month — borrowing enabled by local tax deductions…
One reality remains — somebody must pay. Three sources exist: taxpayers; public-sector retirees, via pension and health-benefits cuts; and municipal investors, via Detroit-style debt defaults in severe cases. Congress is making the first more difficult for state and local governments, and in most places, legal protections prevent governments from cutting pension benefits.
That leaves bondholders. As the Standard & Poor’s rating agency said this week, the overall impact of a tax plan that curtails state and local tax deductions “could be costly and detrimental to the credit quality of many public-finance issuers…‘
Stay tuned as this week is where the political s–t is likely to hit the fan!
Michael Haltman, President
Hallmark Abstract Service