Friday, December 29, 2017

The Double Standard of Corporate Tax Cut Opponents

Tom Moran’s column, A monstrous tax bill that wounds Obamacare, too, didn’t stop at ObamaCare. The litany of complaints included this:

-It is not partisan Democrats who say this bill is designed to hurt blue states like New Jersey, with high incomes and high taxes. That comes from all of MacArthur's Republican colleagues in the delegation, as well as private conservative groups like the state Chamber of Commerce. New Jersey is one of four states that will pay higher taxes under this bill, thanks to the new cap of $10,000 on deductions for state and local taxes.

I left this comment, edited for clarity:

There is a huge double standard regarding the SALT deduction.

The main argument most advanced against limiting the state and local tax deduction is that the same income shouldn’t be taxed twice. Fair enough. (The SALT issue is actually more complex. But leave that aside for the moment.)

But then the same argument applies to the corporate income tax: It is double taxation. The owners of the corporation are taxed twice—once at the corporate level, and again when they receive dividend and capital gain income. The people railing against the SALT deduction limitation, if they are consistent, should be cheering on the corporate income tax rate cuts in the Republican tax bill—even to the extent of calling for the elimination of the corporate income tax. They don’t. It’s a double standard.


I mentioned the complexity of the SALT issue. Consider that, in New Jersey—the highest property tax state in the country—about 2/3 of the property tax bill is for government schools. This means that “contributions” to government schools are tax deductible. High tax states are already latching on to a way to get around the limit on property tax deductions. California and New Jersey are considering restructuring their public school systems into 501(c)3 organizations so residents can deduct the portion of their taxes that now goes to the schools as charitable deductions (believe it or not).

Which begs the question, why should NJ residents get the deduction for government schools, while money they spend on private or homeschool options are not? This seems unfair.

Then there are towns in which the cost of garbage collection is included in the property taxes. This means that garbage collection fees are tax deductible!

Anyway, the limits on SALT deductions has unleashed an avalanche of creative thinking about how to minimize the effects. The interesting thing about this is that the SALT limits mainly hit high tax states and, within those high tax states, hits mainly the wealthy who pay the most taxes. This put Democrats in the position of protecting the wealthy in their respective states, because most of the income taxes they collect is paid by the wealthy, who they fear will flee for lower tax states.

This could be avoided by a simple flat-rate income tax. Oh well.

Interesting. (Robert Frank covered this issue nicely on CNBC on Thursday, December 21, 2017.)

Related Reading:

Why Pick On ‘Rich Corporations’, Benefactors of the Middle Class?

The Left’s Insatiable Lust to Soak American Business

Toward Less-Unfair Corporate Taxes

Double-Taxation Means Double Injustice for Romney—Ari Armstrong for The Objective Standard

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