Carroll County Times
Carroll County Times Opinion

Lane: A tax plan to confound the Democrats

Blue America may fear President Donald Trump and loathe him. But the president does not feel the same way toward blue America.

I say this because there is a clever, readily available and probably popular combination of policies that would sow instant chaos, financial and political, in the states that voted for Hillary Clinton last year, as well as in the upper echelons of the Democratic Party that governs them.


The fact that Trump has not suggested this plan — seemingly, it has not even occurred to him — is proof of his harmlessness.

The scheme would work as follows. Step One: Abandon Trump's entire tax plan except for one proposed provision, the elimination of the deduction for state and local taxes. This would boost federal revenue by a projected $74.1 billion in 2018 and similar amounts in succeeding years, according to the congressional Joint Committee on Taxation.


Step Two: Spend these proceeds on expanding the earned-income tax credit, or EITC, for the working poor, coupled with modernizing Amtrak's decrepit rail system in the Northeast Corridor and constructing a new high-speed rail system in California.

House Speaker Paul Ryan, R-Wisconsin, has a proposal for EITC expansion that costs $13.8 billion per year, according to the American Action Forum, a conservative think tank. The rail stuff is a bit murkier, price-wise, but shortly before the Obama administration ended, the Transportation Department produced a $128 billion, multiyear plan to upgrade the Northeast Corridor. California's latest cost estimate for its bullet train is $64 billion. So start with those numbers, and in the unlikely event there's anything left over, use it to reduce the deficit.

Step Three: Stand back and watch Democrats go crazy. Their first problem will be trying to explain what's wrong with ending a tax break for the relatively well-off to increase a tax-code benefit for lower-income folks — without seeming to special-plead on behalf of their own well-heeled constituents.

In 2016, 93 percent of the state-local deduction benefited people who earned more than $100,000 per year, according to data from the Joint Committee on Taxation; but 98 percent of the EITC benefited people who made less than $100,000. And the money from the state-local deduction went disproportionately to high-income taxpayers in blue states, which fund themselves via income and property taxes that are much higher than those in, say, Florida. Taxpayers in just two states — California and New York — claim roughly a third of the deduction's aggregate value, according to the nonpartisan Tax Policy Center.

Democrats' second problem would be turning down this dollop of federal money for pet infrastructure projects.

The policy rationale for the state and local tax deduction is that folks shouldn't have to pay taxes on taxes. However, using upper-income blue staters' money not only to help the poor but also for climate-change-fighting mass transportation, in their own regions, could be a strong counterargument.

In any case, there would certainly be an interesting, uh, debate between pro-Democratic teachers unions, which live on local tax revenue, and pro-Democratic construction unions, which would be salivating at years and years of high- paying infrastructure work.

As for Republicans, they would achieve all this discord in the enemy camp without much financial pain to their red-state voters, and without violating party doctrine, such as it is. Some might spin eliminating the state-local deduction as a tax increase. But you could just as easily characterize the EITC increase as a tax cut — and one with a record of incentivizing work effort to boot.

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Many Republicans (though not Trump) revile wasteful infrastructure spending, or claim to, but at least this round wouldn't increase the deficit, because it's paid for — by the people most directly affected.

Of course, this fantasy — inspired by the rich-poor, blue-red divides that were exposed when it dawned on the public that Trump's one-page tax plan eliminated the state-local deduction — is just that, a total never-happener.

One implication of this little thought experiment, though, is that Republicans prefer to pursue massive tax cuts for the rich, paid for with more borrowing, rather than mildly redistributive, but fiscally responsible and pro-work, policy innovation.

This is true even though trying the latter might crack a Democratic coalition of minorities, upscale white urbanites and hard-pressed unions who have a clear common enemy, Trump, but less-clear common interests.

The state-local tax deduction, which has helped entrench differential social policy in the red and blue states, is just one of many cost-shifting mechanisms woven into America's convoluted federal-state system of public finance.

They have survived, not necessarily due to their merits, but because protective political coalitions have grown up around them. Sooner or later, something has to give — financially and politically. Probably later.


Charles Lane is a Washington Post editorial writer specializing in economic and fiscal policy, a weekly columnist, and a contributor to the PostPartisan blog.