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Defying the Odds

Defying the Odds
New book about the 2016 election.

Thursday, November 23, 2017

Punishing Blue Constituencies in the Tax Bills

In Defying the Odds, we discuss the tax issue in the 2016 campaign. 

At The Atlantic, Ronald Brownstein explains that GOP tax legislation screws Democratic constituencies. A couple of examples:
Taxpayers in Democratic-leaning states: To fund other tax cuts, the House and Senate plans rely heavily on retrenching the deduction taxpayers can now take for state and local taxes, known as SALT.
Of the 20 states where the highest percentage of taxpayers take that deduction, Hillary Clinton won 16 last year. Donald Trump, meanwhile, won 26 of the 30 states where the smallest percentage of taxpayers use the SALT deduction. In that way, the bill forces blue-state families to fund tax cuts for their red-state counterparts.
Homeowners in big-city markets: The impact of the SALT changes is magnified by the House bill’s provision halving the maximum mortgage-interest deduction to $500,000. In most markets, this affects few taxpayers since few home prices exceed that threshold. But data from ATTOM Data Solutions, which tracks property information, show that provision could hurt one-fifth or more of homebuyers in the most expensive markets around major cities, particularly along the coasts—places like Seattle, Southern California, Silicon Valley and the San Francisco Bay area, Northern Virginia, and the New York City metropolitan area. All those places, like most large metropolitan centers, gave Clinton commanding margins.
Between the mortgage and SALT limits, the bills hit many upper-middle-class taxpayers, especially in blue states. The Institute on Taxation and Economic Policy calculates that by 2027 the Senate bill would raise taxes on about 45 percent of households between the 80th and 95th income percentiles in California, Virginia, New Jersey, and New York; and over one-third of such families in Oregon, Minnesota, and Illinois. Many of those families are precisely the white-collar suburbanites who have long resisted Trump.

In all, ITEP has calculated that by 2027 taxpayers in New York, New Jersey, Maryland, and California—which Clinton won— would pay nearly $17 billion more in federal income taxes. At the same time, those in Texas and Florida—which backed Trump—would pay over $31 billion less. “You can definitely see the ideological tilt here,” Carl Davis, IRET’s research director, told me.