“SALT”-y Profiles in Tax Reform Courage
This week, President Trump’s big tax reform bill passed the U.S. House of Representatives. While no legislation this complicated will ever be perfect, the moment marked a major milestone in the fight to overhaul America’s complicated, uncompetitive tax code.
Writing in the Wall Street Journal, Kimberly Strassel commended what she dubbed a group of Californians Worth Their SALT:
Hell hath no fury like a swamp creature scorned, and that ferocity was trained almost exclusively these past weeks on California House Republicans. The attack was a case study in standing up to entrenched special tax interests, and a lesson to other Republicans in the virtues of having the backbone to go on offense.
The House GOP passed its tax-reform bill on Thursday, and special medals of valor go to the 11 of 14 California Republicans who voted in support. The lobbyist brigade had joined with Democrats to target the Golden State delegation, seeing it as their best shot at peeling off enough Republicans to kill the bill. The assault was brutal, dishonest and all-out.
“SALT” stands for “State And Local Taxes,” an extremely popular federal deduction in high-tax states like California, New York and New Jersey. Ms. Strassel continued:
This is the reward for attempting to simplify the tax code—the forces of distortion scurry to protect their privileges. Democrats had hoped Republican infighting would tank tax reform. But as the GOP kept marching, the left and special interests instead turned to picking off blue-state Republicans with scare campaigns about mortgage interest and SALT. Most of the New York and New Jersey GOP contingencies quickly caved, which left the Californians to field all the incoming fire. Had they defected in the same manner as their Northeastern colleagues, the bill would have failed.
The tax reform’s clampdown on SALT deductions is more politically fraught, given that six million Californians claim these tax breaks annually. But tax writers made sure state Republicans came armed with analyses showing how other reforms—cuts in individual rates, the doubling of the standard deduction, the elimination of the alternative minimum tax—would more than offset a SALT elimination, and members forcefully made the case.
What proved most effective, however, was the state Republicans’ willingness to go on offense and throw SALT in Gov. Brown’s face. California has the heaviest tax burden in the country and only just implemented a punishing new 12-cent-a-gallon-increase in its gasoline tax. Mr. McCarthy used the occasion to release a video pouncing on that hike and noting that “if Gov. Brown is worried about the tax burden, let’s make cutting [taxes] a federal and state project.”
“The idea of Jerry Brown and Nancy Pelosi, who have spent entire careers making it more expensive to live, work and do business in California lecturing us on taxes is pretty unbelievable,” Ken Calvert, dean of the California delegation, told me after Thursday’s successful vote.
As we recently shared in A Tarheel Tax Lesson for South Carolina, their experience closely mirrors that of U.S. Senator Thom Tillis, when North Carolina passed major tax reform under his then-Speakership:
While overhauling North Carolina’s tax code now seems like a no-brainer, at the time it was difficult and highly controversial. Republicans controlled the governor’s mansion and both houses of the General Assembly, but there were disagreements within the GOP on how to implement tax reform. The key to success was keeping all options on the table until the full effects could be modeled. While heated debates occurred during the negotiations, lawmakers always pulled themselves back to shared principles. We made compromises and achieved consensus.
When droves of lobbyists and special interests were rushing to state legislators’ offices with their wish lists of exemptions, we made it clear that guerrilla tactics would not be well received and that our commitment to consensus was steadfast.
State revenue has increased each year since tax reform was enacted, and budget surpluses of more than $400 million are the new norm. North Carolina lawmakers have wisely used these surpluses to cut tax rates even further for families and businesses, to increase education funding, to raise teacher pay, and to replenish the state’s rainy-day fund.
The moral of both these stories?
Fundamentally overhauling tax codes is a big lift. And the opposition is predictable – and guaranteed. As Representative Tommy Pope (R-York) once joked, whenever the South Carolina tax code is discussed, it becomes “lobbyist full-employment day” at the Statehouse.
But as North Carolina and the “California 11” demonstrate, equipped with good information and the political will to play offense, major reforms to fix South Carolina’s unfair, unstable, uncompetitive tax code ARE possible. And you can bet Palmetto Promise Institute will continue to be on the front lines, building the coalitions, crunching the data and developing the tools necessary to make it happen.
It’s long-past time for us to stand up for the South Carolina “little guy”…and in doing so, power a bright economic future for all.
LEARN MORE: 10 Frightful Facts about South Carolina Taxes