Like millions of frustrated but relatively fortunate Americans this past holiday season, I spent the final week of the year scrambling to determine whether I could, or should, prepay 2018 D.C. property tax, in the hope of enjoying its deductibility from my federal taxes one last time before the new Trump tax law essentially eliminates the benefit.
Because the tax code was complicated before the Trump tax law passed and is even more complicated now, I changed my leaning on the question a number of times. Against when the IRS issued guidance suggesting 2018 property tax would only be deductible from 2017 income if local governments had already assessed the tax, in favor when the D.C. government issued a statement giving residents the green light to prepay. Against, when I realized I might trigger the Alternative Minimum Tax, in favor when my rough calculations suggested this wasn’t a huge danger.
In most ways this is the epitome of a first-world problem, but in two key respects, professional-class denizens of high-tax states and D.C. are right to feel annoyed: First, because the ambiguity surrounding this weird one-time-only deductibility question is an artifact of the sloppy, heist-like way Republicans rushed their tax bill through Congress; Second, because this benefit isn’t being pared back to finance broadly useful or admirable ends like public spending on infrastructure or increased welfare for the poor and working-class. All the revenue will be funneled up the income scale to extremely wealthy owners of corporations and heirs to enormous estates, who will get multi-trillion dollar tax cuts.
My taxes climbed so that Ivanka Trump can pocket more money from renters, and then enjoy a larger inheritance. I was, and remain, pretty pissed about those things—pissed enough that, if I didn’t already work in a political realm and didn’t already have fixed ideological leanings, I would conceivably allow the end-of-year annoyance and the modest overall tax hike I am likely to face going forward to shape my choices at the ballot in November.
I don’t think that’s projection either. The people responsible for the Trump tax law, including President Trump himself, seem to recognize that in their haste to please donors, they both made a greater hash of the tax code and left many of their own typically reliable voters (middle- and upper-class suburban professionals) seething.
“You know, we had a lot of people who fought very hard against, let’s call it SALT [the state-and-local tax deduction],” Trump told Mike Schmidt of the New York Times in an otherwise inscrutable and rambling interview. “Had they come to me and said, look, we’ll do this, this, this, we’ll do [inaudible]. I could have done something with SALT. Or made it less severe. But they were very ineffective. They were very, very ineffective. You understand what I mean. Had they come to me for a bipartisan tax bill, I would have gone to Mitch, and I would have gone to the other Republicans, and we could have worked something out bipartisan. And that could’ve been either a change to SALT or knockout of SALT.”
This is Trump’s lame attempt to suggest that people who find themselves on the losing end of the newly-capped SALT deduction should actually be angry at Democrats. It’s something he wouldn’t have bothered to say if he didn’t realize that he’d stirred hornets nests in dozens of red-leaning districts around the country, most of which he will need to win to maintain control of the House of Representatives next year.
And that political assessment is one of two reasons Democrats should not allow Republicans to take a mulligan on the SALT-deduction cap, even though it will be politically tempting for them to do so, and even though it would benefit me, personally.
This is all hypothetical for the time being, but it’s so easy to imagine that it’s worth proceeding as if a SALT “fix” were already on the table in Congress. On the one hand: SALT deductibility was, on its own terms, a pretty regressive provision of the old tax code, and Republicans like tax cuts that favor the rich. The new cap on SALT deductibility raises a fair amount of revenue, and revenue streams run at cross-purposes with the GOP’s “starve the beast” ethos. Plus, capping the deductibility has created enormous political problems for congressional Republicans, who don’t want to lose their seats in November. On the other hand: SALT deductibility is a big deal to a lot of influential Democratic Party voters—like residents of blue-state cities and suburbs—and power players—like Democratic congressional aides and political operatives who live and work in Washington, D.C.
That’s a recipe for a corrupt bargain, in which Democrats and Republicans come together on a Friday afternoon, or on the eve of a major legislative deadline, and quietly slip a provision doubling or tripling or eliminating the new $10,000 SALT cap into law, with overwhelming bipartisan majorities.
This would be a huge mistake. Democrats should anticipate the mistake, and set forth strict the criteria under which they would provide enough votes to help Republicans reopen the tax debate in advance, so Republicans don’t try to jam them before their position on the issue is clear.
As a stand-alone provision, SALT deductibility was distributionally regressive (mostly a benefit to well-off property owners) which means eliminating it or capping it is distributionally progressive—but only in the abstract, or in the context of legislation that doesn’t funnel the savings into the pockets of super-rich people, the way the Trump tax law does. As Democrats regain power, they should view the new SALT cap and other tax increases written into the law not as permanently tainted provisions of the Trump tax code, but as sources of revenue that can be repurposed from enriching the already wealthy to funding programs that contribute to the general welfare. By lifting taxes on a real and growing population of working people, Republicans ironically did some of the heavy lifting Democrats were likely going to have to do eventually to finance future progressive initiatives. As a result, future Democrats can impose a higher corporate tax rate, a heftier estate tax, capital gains tax increases, and end up with more revenue than they had to play with during President Obama’s second term—all without touching middle-class taxes. If they use that money to expand access to health care and make college more affordable, they will have Republicans to thank for broadening the tax base and absorbing all the ensuing political pain for them.
That last point is worth reiterating. Republicans seemed stunned to learn that their drive-by corporate tax cut was extremely unpopular, and the mess they made of the SALT deduction is only exacerbating the public antipathy to it. I expect we will learn about more and more tax-law mishaps that Republicans will come to regret over the course of the year.
But Democrats have been pathetically slow over the past decade to acclimate to our polarized political environment. After the Affordable Care Act passed in 2010, Republicans were determined to subject the public to every sloppily written provision of the law in order to weaken its public standing and increase the clamor for repealing it. Congress passed almost no meaningful technical corrections legislation between 2010 and 2017, even when it would’ve benefited Republican constituents. Those same Republicans are now most likely counting on Democrats to bail them out of the unintended consequences of their horrible tax law. It would be a good thing for the country to return to a pre-Obama status quo, when Congress viewed improving the function of federal law as one of its core obligations. But unless and until that happens, the worst possible detente would be one in which Democrats must legislate in the face of massive GOP resistance, while Republicans are allowed to legislate secretively and sloppily, knowing that Democrats will shield them from blowback when the implementation of GOP law goes awry.
If Republicans are willing to trade a reversal of the SALT deduction cap for something Democrats support—and will probably do on their own in the next decade anyhow—Dems should consider a swap. If Republicans realize they need to enact a bunch of patches to the tax law, to prevent it from hemorrhaging revenue or harming people they didn’t intend to harm, Democrats should demand real concessions (a higher capital gains rate, say, along with the disclosure of Trump’s tax returns) or refuse to play ball.
But otherwise they should stand firm on the precedent Mitch McConnell set for legislation passed on a partisan basis eight years ago. Republicans broke the tax code, so they own the tax code. If only there were good reason to believe Democrats really learned this lesson.