Stupid Tax Tricks

by Neil H. Buchanan

As I write this column, Republicans in the U.S. Senate are doing their part to make sure that the debate about taxes becomes even more absurd and incomprehensible.  Not that that's a bad thing.  This whole process is a sham, and we would be much better off if they did nothing at all.

And it might well come to that.  I continue to believe, however, that Republicans will flail about for several months but then cobble together something at the last possible moment before some self-imposed deadline.  Whatever they ultimately pass, they will call it "reform" and Donald Trump will call it "tremendous."

Whatever emerges in the end will almost certainly be nearly unrecognizable compared to where they started.  In the meantime, I find it unfortunately necessary to pay attention to the process, because Republicans will stagger along and make some ad hoc and often accidental decisions that will somehow become accepted wisdom.  Path dependence matters.

To be honest, however, for people who follow politics or tax policy (or both), all of this is as close to mental masturbation as it could ever be without misusing the word "literally."  Hence the following disclaimer: This column will probably end up being as relevant to future tax analysis as the House Republicans' failed March 2017 health care bill is to doctors and hospitals today.  You have been warned.

To get a sense of just how unprincipled the entire tax debate has become, consider the tussle over repealing the state-and-local tax deduction (known as SALT).  Initially, almost all congressional Republicans liked the idea of repeal, because ditching the SALT deduction would harm upper-middle-class people in blue states (who pay higher taxes so that their state and local governments can provide more and better services -- a no-no to Republicans).

It was of no concern that red states still make out like bandits in the federal taxing-spending balance.  This was never about anything remotely resembling fairness or principle.  If merely comfortable people in the top 2-10 percent of the income distribution have to pay more so that Republicans can score a win for the big boys at the very top, so be it.

This entire game, after all, is to cut taxes for super-rich people and corporations to reestablish the Republican brand, even though almost no one other than the party's big-dollar donors actually believes that tax cuts should be a priority.

But House Republican leaders were quickly reminded that some of their members represent upper middle-class high-tax districts near major cities, where the SALT deduction is somewhere between wildly popular and sacrosanct.  Solution: keep the deduction for property taxes but not income taxes, averting a rebellion by the slightly less extreme House Republicans from those districts.

That, however, is standard operating procedure for principle-free Republicans.  And to be fair, it is generally how most legislation is crafted -- although most such compromises in the past have not been rushed through with absolutely no input from the other party.  (No, the Affordable Care Act was not rammed through Congress by Democrats with no attempt to reach out to Republicans.)

What makes the current dance around the SALT deduction so amusing is that the Republicans in the Senate are now apparently planning to repeal it entirely in their new tax bill.  Why?  As a news article in The New York Times explains:
"The Senate plan is taking shape as Republicans digest the drubbing they suffered on Tuesday night in affluent suburbs across the country, many of them represented by Republicans in the House. Those areas are stocked with well-off voters who would be disproportionately hit by the elimination of state and local tax deductions.

"But in the Senate, those high-tax areas are often represented by Democrats, which puts less pressure on Republican leaders to keep the state and local deduction, in any form, in their version of the bill."
So Senate Republicans are essentially saying, "Hey, none of us will suffer politically if we repeal the SALT deduction, so you people in the House can suck it."  Yes, I realize that there are ways to describe this as the first of several chess moves that will result in Republicans reaching tax nirvana, but considering that Republicans almost failed to pass an earlier building block in this legislative process because of suburban House Republicans' concerns about SALT, this looks less like chess and more like a game of tag on a playground.  "You're it!"

Do Senate Republicans actually not care whether their party loses their House majority?  Come to think of it, I hope not.

But it is not just Republicans in Congress who are alternately a source of amusement and despair.  Media coverage of tax reform continues to be stunningly credulous.  At this point, for example, it appears that The Times has a standards-and-practices editor who insists on using the word "sweeping" in every story on Republican tax proposals.  (The headline on the article that I described above: "Senate Republicans Will Diverge From House in Sweeping Tax Rewrite.")

As I wrote last week, the only way to call any of the Republicans' versions of tax policy "sweeping" or "fundamental" is to strip all meaning from those words and use them to mean "big" or "jumbled hodgepodge."  There are no principles at stake here.  Heck, even the silly idea that reducing the number of tax brackets counts as fundamental reform is not relevant to the Senate's bill, which reportedly will keep the current rate structure essentially intact.

The other journalistic tic that shows up in nearly all mainstream coverage of the Republicans' tax gymnastics is the uncritical acceptance of conservative talking points about the miraculous effects of tax cuts.  As I wrote back in September, "business reporters in particular seem all too willing to assume that Republicans' favorite talking points about taxes are all true."

Reporters for The Washington Post continue to prove me right:
"[Republicans are] considering allowing companies to immediately deduct capital investments in 2018 from their taxable income, the people familiar with the matter said, which would avoid having companies wait until 2019 to spend on the economy."
In fact, it is highly contestable -- one might even say completely fatuous -- to claim that allowing companies to immediately deduct all capital spending will cause them to "spend on the economy" in 2018, 2019, or ever.  For years, American companies have been sitting on piles of cash, all of which could be spent on investment projects to expand businesses' operations.  The companies are not using those funds because they do not want to, not because they cannot deduct spending immediately.

The same article in The Post moves into even more ridiculous territory when the authors write that a heavily funded anti-tax group "wants the bill’s authors to make it easier for businesses to claim a lower 25 percent income tax rate, as well as to speed up their planned repeal of the estate tax, in a bid to promote economic growth."

I think I once heard about something called "journalistic skepticism," but maybe I am imagining things.  One might have hoped that "repealing the estate tax will promote economic growth" is one of those places were a responsible reporter might decide to add a word like "supposedly."  Maybe not.

Even just a he-said-he-said formula, with a comment from any responsible tax analyst noting that there is zero evidence that the estate tax hinders economic growth, would be an improvement.  One of The Post's op-ed columnists, for example, nicely explained how estate tax repeal (and several other measures in the House bill) would merely reward (in her words) "the lazy rich."

But perhaps reporters could argue that they face a nearly impossible task, because Republicans continue to make fantasy-based assertions about their tax proposals with such sincerity and repetitiveness that it becomes almost mesmerizing.  That is not much of a defense for a profession that is supposed to see through BS, but it is undeniably true that Republicans' faith in the magic of tax cuts is child-like.

For Republicans, it simply does not matter that there is no evidence that tax cuts increase economic growth.  Yes, I said "no evidence," which means that only people who want it to be true can concoct stories to support their favored conclusion.  For a few examples of objective analyses proving that tax cuts do not increase economic growth, see here and here.

But none of that matters.  Republicans simply know that it must be true, so they repeat it over and over again.

Consider, for example, the top tax pseudo-expert among House Republicans, the current chair of the Ways and Means Committee, Texas's Kevin Brady.  Defending his bill against attacks by the National Association of Home Builders (who are understandably worried about proposed limitations on the mortgage interest deduction), Brady kept the faith, according to another article in The Post:
"The GOP tax bill, Brady said, would stimulate the economy generally, including the real estate sector: 'You get home values up, you get more sales, you get better prices when the economy is stronger,' he said. 'This tax plan is all about getting growth going. That is good for home builders. It’s good for homeowners like you and me.'"
Someday, I hope to have such innocent trust in something supernatural (or at least the ability to fake such trust).  Everyone is supposed to believe that the economy will get stronger -- and not merely stronger, but so much stronger that every other bad thing is completely erased.

You think that your house's value will go down because of directly relevant considerations like potential buyers not being able to borrow the full amount with tax-deductible mortgages?  No worries.  Growth will solve all of it.  Trickle down lives.  Trickle down on steroids.

Again, there is no way to predict whether any of the provisions that I have described here will end up in a final bill (if, indeed, there ever is a final bill).  Even so, we at least need to monitor what is happening as the process drags along in its desultory way.

At this point, for all of the sound and fury, there is almost nothing new to report: Republicans continue to rely on trickle-down fantasies that have been long since debunked, and reporters fail to call them on their fanciful lies.

The only thing that we might consider somewhat newsworthy is that the Republicans in the Senate and the House are so far apart that they cannot even remember that they are from the same political party.  Lord of the Flies comes to the Republican Party.  If they keep it up, the country might be saved.