Friday, October 27, 2017

Tax Reform: The GOP’s ObamaCare

With the Republican budget narrowly passing in the House, the groundwork is set for the GOP to proceed with tax reform legislation.  The rhetoric emanating from GOP leadership describes an idyllic world of lower taxes for all middle class taxpayers regardless of where they live.  In reality, there will be very significant winners and losers from their plan with middle to upper middle class taxpayers in predominantly high tax blue states suffering the bulk of the burden.

As the Atlantic has reported, residents of 14 states pay more in federal taxes than they receive in federal aid.  Many are states with high state and local taxes such as California, New Jersey, New York, Illinois, and Massachusetts.  The implication of this is that residents of these 14 states effectively subsidize the operating costs of the other 36 states, reducing their need to impose higher state and local taxes on their residents.  Now Republican legislators want to exacerbate this inequity by eliminating federal tax deductibility of state and local taxes, effectively resulting in double taxation of this income. 

Republican legislators distort reality by claiming that low tax states are subsidizing the profligate nature of these largely Democrat controlled states, many of which have comparatively high median incomes and significantly higher cost of living.  In New York City, for example, the NYT reports that the average apartment rents for $3,973 per month and the average price of a home was $1.46 million.  By their calculations, someone in NYC would have to make $166,000 per year to have a similar lifestyle to someone making $70,000 per year in other parts of the country.  This person would already be in a much higher marginal income tax bracket and would likely be struggling to cover the $4000 per month in rent and higher costs of necessities. 

If the Republicans truly wanted to help the middle class, they would look more broadly at the array of sacred deductions.  Rather than deeming mortgage interest, charitable giving, and child tax credits as sacrosanct, they should just cap all deductions at $100,000 per year.  This would effectively limit deductions for the very wealthy while enabling taxpayers across the country to respond to the local circumstances that define their lives. 

Ultimately, the GOP must face voters in 2018.  They should learn from the mistakes of the Democrats in their haste to ram through the Affordable Care Act (aka Obama Care) and realize that a legislative win on purported tax reform may cost them much more than they think.  They should decide if their fragile majorities in the House and the Senate are worth the pound of flesh they seek to extract from the coastal middle class. 

Tuesday, September 27, 2011

NFL Football in Los Angeles: Jerry Brown’s Jobs Plan

Today California Governor Jerry Brown fast-tracked AEG’s (Anschutz Entertainment Group) plan to build a 72,000-seat NFL stadium in downtown Los Angeles by signing into law a bill that limits lawsuits that could delay the project.  Brown claimed that it is time “for big ideas and big projects” to help California escape its stubbornly high rate of unemployment.  Along with the stadium project, a favorite among politicians that eagerly show their support at celebratory news conferences with billionaire Anschutz’s deputies, the governor also signed a bill granting select large construction projects faster judicial reviews of environmental issues.  Bruce Reznik, executive director of the Planning and Conservation League, states that he believes the laws set a “dangerous precedent when any company can come along and have enough power and influence to get a law that basically says you are treated differently than everybody else."

Governor Brown’s endorsement of these bills raises two important points.  First, the state is hopelessly burdened by excessive layers of regulatory burdens, impact studies, and public comment periods that slow development, drastically increase costs, and encourage private economic activity to locate elsewhere.  A company contemplating a new factory or facility must decide that the effort and expense of complying with these regulatory hurdles outweighs development options available overseas or in other states.  These requirements were implemented by environmental and other interest groups to discourage “dirty” industries and certain activities from being economically feasible in California, but they also increase our dependence on China and other nations that do not have our best interest at heart.

These bills rightfully seek to reduce the crushing regulatory burdens facing businesses and individuals in California, but they also highlight that only the rich and connected are able to evade the heavy hand of the State.  If these were great policies that would foster economic growth, why were they not past years ago when people were losing jobs at one of the fastest rates in our history?  Why are these narrowly applicable to only select projects deemed of sufficient scale or political importance?  Akin to the Obama administration’s taxpayer funded loans to politically connected and now bankrupt solar company Solyndra, these laws seek to favor people that have the economic resources to attain political influence.  It concentrates economic opportunity in the hands of the politicians and the wealthy, favoring their project regardless of their economic merit or social benefits for the State of California.  Quite simply, it is these types of "crony capitalism" policies, disguised under a shroud of economic stimulus or job creation, that favor the established powers and the wealthy over the small entrepreneur and the middle class that struggle to compete in a ever more challenging global economy.

September 29, 2011 Update:  Speaker of the California Assembly John PĂ©rez, who represents downtown Los Angeles and has been a major supporter of Farmers Field, just stated in an interview with AM 710 ESPN that all potential challenges to the project will be reviewed within 175 days after the release of an environmental impact report rather than the typical 3-5 years of court challenges that would typically delay a project of this scale.  This fact was celebrated as a great achievement that removes the final hurdle to development of privately owned Farmers Field and will create 23,000 jobs in the area.  Even assuming this all is true, it ignores the fact that only those politically connected individuals and companies that give generously to the re-election campaigns of entrenched officials can benefit from such legal expediency.  The rest of us will be mired by an array of often baseless lawsuits that delay action and will be required to obtain approval of the politicians and power brokers that dictate commerce in our state.  We must regain control of economic activity and development before we are relegated to the subservient class from birth, destined to support the wealthy and powerful with no claim on the American dream.