One Way States Can Dodge Trump’s Punitive Tax on Democrats

This article was first published on Dorf on Law.

Taxes are not supposed to be in the news right now. Back in December, Republicans abandoned all pretense of legislative order and sensible lawmaking to pass their stroke-the-rich tax bill, which Donald Trump happily signed.

And now we are supposed to have moved on, which is pretty much what has happened. Why continue to worry about the last tragedy when new tragedies are hitting us in the face every day?

It is amusing to note, however, that Trump and the Republicans apparently think that their awful tax bill was a political win for them, which means that they are the ones who want to keep talking about it.

In his inimitably narcissistic way, Trump even argued that the current government shutdown is all about the tax law. As The New York Times reported on January 18: "Traveling in Pennsylvania, Mr. Trump accused Democrats of provoking a shutdown to drown out discussion of the Republican tax overhaul. 'I think the Democrats would like to see a shutdown in order to get off that subject,' Mr. Trump told reporters before delivering a speech."

The words "detached from reality" seem especially apt here.

Given how unpopular the tax bill was, and given that the bill is going to be the Democrats' best non-Trump talking point in the upcoming elections, the idea that Democrats would want to change the subject away from the tax bill is absurd.

Democrats should be spending every day hoping to get people to remember just how bad this bill is, because the Republicans handed them a huge political win with this reviled and regressive mess of a bill.

It is true that companies have been trying to suck up to Trump by making splashy pronouncements about how the corporate tax cuts are having positive effects, even though the companies' moves are mostly either window dressing or entirely unconnected to the new law and do not even fit within the Republicans' theory of how the tax cuts are supposed to work.

GettyImages-98452319 Felipe Castro holds a sign advertising a tax preparation office for people that still need help completing their taxes before the Internal Revenue Service deadline on April 14, 2010 in Miami, Florida. Joe Raedle/Getty

Nevertheless, a spokesman for the U.S. Chamber of Commerce (hardly a group that is hostile to Trump) admitted that such moves are "an extremely clever way to get the president’s attention [and] probably gets them some good points inside the White House."

I realize that Trump can never be taken at his word, especially when he is flailing about in an effort to gain political advantage. After all, he is also claiming that Democrats planned the shutdown to distract everyone from the gala celebrations of Trump's one-year anniversary as president.

Apparently, Democrats were willing to shut down the government in pursuit of a two-fer, ruining Trump's happy tax talk and reducing his ego gratification, notwithstanding the political risk of Republicans sliming Democrats for being too cozy with "illegals."

In any case, Trump and the Republicans seem to have convinced themselves that their extremely unpopular tax bill is somehow going to become popular. Stranger things have happened, I guess.

In the meantime, people are trying to figure out how to respond to the bill as it exists, and the leaders of blue states might have found a particularly satisfying way to frustrate Republicans' efforts to target citizens who tend to vote for Democrats.

One of the most nakedly partisan provisions in the 2017 tax act was the reduction of the deductibility of state and local taxes (SALT). Republicans in Congress figured out that they could punish upper middle class voters in blue states by putting a limit on the deduction for SALT, effectively increasing the federal tax liabilities of educated professionals in states with relatively high state taxes, all of which voted against Trump. Clever.

The Republican response to any claim of unfairness is that people who do not like to pay more in taxes can now put pressure on their state legislators to reduce the state's tax take, which fits into Republicans' theory of government -- or more accurately their theory of anti-government.

On its face, then, this change in the federal tax code could simply be one of many ways for the party that controls the government to pursue its policy agenda. It gives people an incentive to do what Republicans want them to do.

Playing hardball in politics is not necessarily unfair. (And this is hardly the Republicans' only attempt to punish their perceived enemies, given that the tax bill includes a tax on colleges and universities.)

As Michael Dorf pointed out in a column and a short note last month, however, the Republicans' move was not merely an especially shameless attempt to pursue their extreme agenda.

By targeting those who voted against them, Republicans actually violated the Constitution. He concedes that this violation is unlikely to be struck down by the courts, but as he put it, this "does not mean the [constitutional] objection is invalid; it just means that there are institutional limits to where the claim can be pursued."

As an interesting comparison, long-time readers of my columns might recall the dark days of debt ceiling standoffs, when Professor Dorf and I argued that if President Obama had ever failed to pay the government's bills in full and on time, he would have violated the Constitution.

One of our most prominent antagonists at the time was Harvard Law School's Laurence Tribe, who asserted that the debt ceiling supersedes the government's spending obligations and thus that Obama would have had to stiff people who had valid legal claims to payments by the federal government.

Interestingly, Tribe offered a throwaway line that at the time seemed uncontroversial. Yes, he conceded, if Obama were to decide which bills not to pay using some nefarious decision rule -- something crazy and unthinkable like, say, favoring blue states over red states -- then he would be violating the Constitution. But other than such a completely outlandish move as that one, Tribe insisted that his analysis was better than ours.

There is a very good chance that there will be another debt ceiling crisis later this year, at which point I will revisit the relevant arguments that will again arise. For now, however, my point is that Tribe's deliberately absurd hypothetical was a near-perfect description of how Republicans have actually abused their power.

Amazingly, that constitutional violation is not even on the top-50 list of outrages that have been perpetrated by the Trump-Republican machine.

But let us imagine that this actually is merely a tough version of standard politics, with winners and losers feeling the consequences of elections. Hardball politics can be played both ways, and it should be no surprise that political leaders in the affected states -- California, New York, Massachusetts, New Jersey, and others -- have been trying to figure out ways to frustrate congressional Republicans' political hit job.

Again, the SALT provision in the new tax law is bad for upper-middle-income people in blue states because such states have relatively high property taxes (due in part to high home values in and around big cities) and relatively high income taxes, all of which supports the kind of redistributive safety net that Republicans love to hate.

When the tax code is changed to eliminate or limit one deduction, however, any sentient person is going to look for other provisions in the code that could allow them to deduct the same payments.

Among several strategies, some of these states are considering (or are already in the process of) setting up "charities" to collect state taxes, because Republicans for obvious reasons did not dare limit the deduction for charitable contributions.

For anyone who thinks that this cannot possibly work, because the charitable deduction has always been understood to be unavailable to people who are using such contributions for personal gain (that is, not truly being charitable), there is a bit of delicious irony.

Religious conservatives succeeded several years ago in gaining legal blessing to deduct their "contributions" to religious schools, contributions that are simply payments of tuition and are thus otherwise nondeductible.

If the blue states go through with these efforts, therefore, there is a very good chance that they will be able to misuse the charitable contribution deduction because Republicans opened the door for such abuse of the tax system.

And although congressional Republicans could revisit this issue and change the tax code to close such a loophole, it seems unlikely that they could win an up-or-down vote on that provision alone, because it would no longer be hidden by the other jaw-droppingly bad provisions in the larger tax bill.

But is this a good idea? Should liberals actually be trying to reduce the tax bills of arguably comfortable people in the name of foiling conservatives' attack on state governments?

The answer is yes, as I will explain in a follow-up column.

Neil H. Buchanan is an economist and legal scholar and a professor of law at George Washington University. He teaches tax law, tax policy, contracts, and law and economics. His research addresses the long-term tax and spending patterns of the federal government, focusing on budget deficits, the national debt, health care costs and Social Security.

Editor's Pick
GettyImages-1062014292

What Is Caravan Paranoia?

"These keyboard commandos, these Walmart warriors, they go down to Cabela’s and buy all these s****y looking goods—stuff to make ‘em look good in the mirror," Robert Crooks, who leads militia group the Mountain Minutemen, said.