By Rohit Reddy
The GOP tax bills will be catastrophic for California’s communities. While the tax scam is not law yet and there will be some changes from the House-Senate reconciliation process, we have enough information to know that it will raise taxes on millions of Californians, and that it lays the groundwork for dismantling Medicare, Medicaid, and Social Security, and greatly diminishes the ability of local and state governments to implement policies that benefit their residents.
Tax Hike on Millions of California’s Families
The GOP tax plan at the simplest level is a $5.5 trillion tax cut, funded by $4 trillion in tax increases and $1.5 trillion in deficit spending. The tax cuts skew heavily to benefit the ultra-wealthy and corporations. The shocking part is that the tax increases fall on tens of millions of families that live in blue states like California, New York and New Jersey.
For example, the plan eliminates deductions for state, local, and property taxes (“SALT”), resulting in a $1.3 trillion tax increase. The SALT deduction, which has been around since 1862, is valuable because it protects us from being taxed on money we’re already paying in (local) taxes. And the savings from this deduction are huge for us in the Bay Area:
Source: 2015 IRS Data (Individual Returns)
Congressional Republicans’ Betrayal of Their Own Constituents
Repealing SALT is thus a major tax hike on a broad base of taxpayers. And it is not just a coastal Democratic thing; 54% of taxpayers in Republican congressional districts claimed the deduction.
Yet all but three members of the California Republican House delegation support the GOP tax plan:
Source: 2015 IRS Data (Individual Returns); Blue indicates voting against House tax bill
The GOP Plan Will Depress Local Economies and Home Values
The GOP tax plan will be a gut punch to our local economies. Here’s one way: Californians claimed $112 billion in SALT deductions in 2015. Let’s assume 2018 would be in the same ballpark if the deductions were allowed: that means that next tax year, with the deductions not allowed, the tax savings from $112 billion will get sucked out of our communities by the federal government and redistributed to millionaires, multinational corporations, and their American and foreign shareholders. Now ask yourself, who is more likely to spend their tax savings in the East Bay: the family earning $150,000 per year with two kids? or Tim Cook, Apple’s CEO? I respect and admire Mr. Cook, but I doubt we are going to see him at Ole’s Waffle Shop on Park Street in Alameda, or any of the Pegasus Bookstores, or the San Leandro Costco.
Eliminating SALT deductions also means the cost of owning your home goes up and home ownership becomes a lot less attractive, leading to a decline in home values that economists estimate to be in the 5-10% range. While many rightly bemoan the high cost of housing in the Bay Area, depressing the value of housing stock isn’t the answer for homeowners, who need to maintain the value of their most valuable asset and a vital source for retirement savings.
Cuts in services to the most vulnerable members of our community
We also want homeownership to remain vibrant because property taxes pay for schools and local needs. New homeowners mean new property assessments, which means more revenue to fund teacher salaries, transportation, and local services. For example: 57% of East Bay households are homeowners, but all East Bay families benefits from our schools. If the revenues from our tax base declines, what are we going to do: raise taxes or cut services?
Because the GOP plan will create a $1.5 trillion hole in the federal budget, we will likely see cuts in services due to a federal rule called PAYGO or “pay as you go.” The rules requires that if Congress is going to pay Paul, it had better rob Peter. The Peter in this case means Medicare (up to $25 billion in cuts per year) and other federal programs. PAYGO is only the beginning as Speaker Ryan has made explicit his intention to cut entitlement program due to … wait for it … deficit concerns.
It doesn’t take economic analysis, though, to realize this about the GOP tax plan: It demands neither shared sacrifices nor delivers shared benefits. It picks as winners those who least need help and losers those who need tax relief and our support. At a time when our nation faces formidable challenges, we need tax policy that advances our common national interest and provides for shared prosperity.
Rohit Reddy is a marketing professional who has a particular interest in bringing facts and evidence to inform decision-making. He resides in Alameda with his wife and two adorable little boys.