Wednesday, November 15, 2017

Eliminate SALT Deductions

How cucked is the GOP? We are about to find out. Going into this tax battle, the GOP said it would eliminate all state and local tax deduction as part of tax simplification. The removal of deductions will be offset by higher standard deductions. Only taxpayers in extreme situations, such as California, New York and New Jersey, aka "the rich" and the Democrats, would likely lose on this.

An aside on "the rich." Many people are "wealthy" thanks to their largest illiquid asset: their house. The median home price in New Jersey is $300,000 vs $150,000 in Tennessee. If the term rich means anything, it means wealthy in assets, and in that case, anyone who is middle class in places such as NYC are rich when compared the rest of America. They may live close to the edge because the cost of living is high, by they always have the option of selling a $1 million home and moving upstate/down south into a nice $300,000 home. The same person in rural Tennessee, or even urban Nashville, is never making that switch to NYC unless it's for employment.

President Trump cucked for the Democrats on state and local tax (SALT) deductions, assuming he's not playing politics. The House put property tax deductions in their bill. The normally cucked Senate went harder and eliminated property tax deductions and threw in an Obamacare mandate repeal (!). Playing with SALT is good short-term strategy because those high-tax states want it bad. Assuming the GOP is cucked, but not retarded, the Senate has now given the House a bargaining chip to trade for votes and the final bill will include property tax deductions.

If you have low time preference though, you eliminate SALT completely without batting an eye. The net present value is highly positive. In the short-run, there could be pain at the ballot box for House and Senate Republicans in blue states. However, there is also immediate pain for Democrats at the state and local level because they'll have to reform or cut taxes if they want to ease the higher tax burden. (It also sets up a rich white asian Dem vs poor black hispanic Dem fight in states such as California.) At the national level, once SALT is gone it is never coming back. How will Democrats pass a tax cut for the rich of California, New York and New Jersey, while attacking Republican tax cuts for the rich at the same time? They can try, but it is a rhetorical fail.

To summarize:

Permanently shift the tax burden to high tax states "that can afford to pay higher taxes" (utilizing Dem rhetoric)
Create demand for tax reform or lower taxes at the state level, which favors the GOP and fractures Dems
Take a one-time GOP electoral hit in blue states
That becomes permanent Democrat electoral albatross if they ever bring it up again

War is the continuation of politics by other means. Democrats understand this; Republicans do not. If they surprise and end up eliminating SALT deductions, the sweet taste of victory might be enough to red pill a few of them.

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