The editors of the New York Times and Washington Post have, more or less, come out on opposite sides on the proposed tax reform on which I posted yesterday. The NYT editors oppose the measure for what are to me short-sighted and puzzling reasons. Their first argument is that if tax expenditures are cut or limited, they can’t be cut or limited in the future for a more worthy goal, i.e. increasing revenues:
The plan, intended only to simplify the tax code rather than redistribute the burden, reduces the number of tax brackets from seven to three. Low-income taxpayers would pay a 10 percent rate, those in the middle would pay 25 percent, and families making $450,000 and above would pay 35 percent instead of the current 39.6 percent.
In many cases, that represents a tax cut, and to make up for the loss in revenue — since the plan aims to be revenue-neutral — a large number of deductions and breaks are eliminated. But ending those breaks just to reduce rates means the savings can’t be used for important expenses in the future — which is a Republican goal.
The second objection is that putting a cap on the home mortgage deduction and eliminating the deductibility of state and local taxes would be unfair to New York:
One big break that would be affected is the mortgage-interest deduction. By limiting it to $500,000, the plan would hurt many middle-class families that must borrow more than that to afford a house in expensive markets like New York. Even worse, it would repeal the deduction for state and local taxes, a deliberate attempt to make it more difficult for “blue” states to provide the services and safety-net protections that they have decided are necessary.
IMO this is flummery. According to the Census Bureau the median home price in New York County is more than $800,000 and, understandably, it has one of the lowest rates of home ownership—a bit over 50%. Nearly by definition people who buy homes valued at more than $800,000 aren’t middle income—they’re upper middle income or upper income. In New York middle income people rent. Additionally, I find it excessive to expect the federal tax code to solve New York’s problems with home affordability. That’s properly a role for the state.
However, the NYT’s complaints bring into sharp relief the problem with the home mortgage deduction and many of the other “tax expenditures”: they are subsidies to people with higher incomes. They go overwhelmingly to the 3% or the 1%. I would think that a tax code that reduced subsidies to the rich would be an improvement.
The editors of the Times do not seem to recognize that a simple tax code will itself be a better tax code, trimming the costs of compliance and reducing the opportunities for gaming the system, opportunities most available to the highest income earners.
The editors of the Washington Post on the other hand seem favorably predisposed to the plan, would be even more favorably disposed to beginning a discussion of tax reform, but are mournful about tax reform’s chances of being enacted into law:
In a properly functioning Washington, the tax reform plan unveiled Wednesday by House Ways and Means Committee Chairman Dave Camp (R-Mich.) would kick off a major debate over how to fix the federal government’s inefficient system of revenue collection. Mr. Camp proposes to overhaul both the corporate and individual tax codes, based on the principle that lower rates should be applied to a broader base of income — that is, one that is purged of many loopholes and deductions that litter current law.
In the actual Washington, alas, Mr. Camp’s proposal has basically no chance of passage, or even of being acted upon this year. Much of the blame for that belongs with the leaders of his party, who smell victory in the November elections and don’t want to do anything controversial — such as committing themselves to an actual positive agenda — that might put that prospect at risk. Instead of praising their fellow Republican’s plan, House Speaker John A. Boehner (Ohio) and Senate Minority Leader Mitch McConnell (Ky.) threw cold water on it.