Okay, that’s not quite what the NYT said. Instead, an article on the impact of ending the tax deduction for state and local income taxes told readers:
“Eliminating the deduction has long been a goal of many Republican lawmakers, who view the tax break as a subsidy that poorer red states provide to richer blue ones that spend heavily on government services.”
Contrary to what the NYT tells us, their reporters really don’t know how Republican lawmakers “view” the tax break. However, for some reason they couldn’t just tell us what they say, they had to pretend to know what they think.
How about if reporters just stuck to telling us what politicians say and do and not pretend to read their minds? Then, we would all have something to be thankful for next Thanksgiving.
Okay, that’s not quite what the NYT said. Instead, an article on the impact of ending the tax deduction for state and local income taxes told readers:
“Eliminating the deduction has long been a goal of many Republican lawmakers, who view the tax break as a subsidy that poorer red states provide to richer blue ones that spend heavily on government services.”
Contrary to what the NYT tells us, their reporters really don’t know how Republican lawmakers “view” the tax break. However, for some reason they couldn’t just tell us what they say, they had to pretend to know what they think.
How about if reporters just stuck to telling us what politicians say and do and not pretend to read their minds? Then, we would all have something to be thankful for next Thanksgiving.
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It’s amazing how so many reporters feel the need to tell us what politicians really think. Sorry, but I don’t believe they know.
The example this time is a piece reporting on how 2018 may be a wave election with defeats for the Republicans comparable to what the Democrats experienced in 2010. It concludes by discussing the effort to shove through a tax bill before the end of the year:
“Republicans do not think the tax bill will be a political albatross once voters gain a fuller appreciation of its advantages. Of course, that is exactly what Democrats thought about the health care bill at this point in 2009.”
It’s entirely plausible that Republicans don’t say that they think the bill is a political albatross. After all, what would that look like? Would members of the House and Senate be telling reporters:
“…we know the public hates this bill because it gives so much money to rich people, but these are our campaign contributors and we have to come through for them. Furthermore, even if we lose our election, they will pay us millions of dollars a year to work for them as lobbyists.”
If something like this were, in fact, the case it is extremely unlikely that Republican politicians would be saying it to NYT reporters. It is far more likely that they would be uttering nonsense about how the tax bill is really good for the country and that people will come to realize this after it is approved.
Competent reporters would just tell readers what the politicians say. They would not try to tell us what the politicians actually believe, since they don’t know.
It’s amazing how so many reporters feel the need to tell us what politicians really think. Sorry, but I don’t believe they know.
The example this time is a piece reporting on how 2018 may be a wave election with defeats for the Republicans comparable to what the Democrats experienced in 2010. It concludes by discussing the effort to shove through a tax bill before the end of the year:
“Republicans do not think the tax bill will be a political albatross once voters gain a fuller appreciation of its advantages. Of course, that is exactly what Democrats thought about the health care bill at this point in 2009.”
It’s entirely plausible that Republicans don’t say that they think the bill is a political albatross. After all, what would that look like? Would members of the House and Senate be telling reporters:
“…we know the public hates this bill because it gives so much money to rich people, but these are our campaign contributors and we have to come through for them. Furthermore, even if we lose our election, they will pay us millions of dollars a year to work for them as lobbyists.”
If something like this were, in fact, the case it is extremely unlikely that Republican politicians would be saying it to NYT reporters. It is far more likely that they would be uttering nonsense about how the tax bill is really good for the country and that people will come to realize this after it is approved.
Competent reporters would just tell readers what the politicians say. They would not try to tell us what the politicians actually believe, since they don’t know.
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The NYT had a good piece discussing the potential impact of capping the mortgage interest deduction and property taxes on the housing market; however, the piece missed an important way in which the Republican tax bills would reduce the benefits of the mortgage interest deduction. The piece notes that doubling the standard deduction will reduce the number of people who itemize and therefore benefit from the mortgage interest deduction.
But both bills also end the deduction for state and local income taxes. Without this deduction, most homeowners will have few other deductions apart from their mortgage interest and whatever is allowed for property taxes. These deductions will be less for almost everyone than their standard deduction ($24,000 for a couple). This means that they would just take the standard deduction and the mortgage interest deduction would be of no value to them. (The Tax Policy Center projects that just over 5 percent of tax filers would still itemize their deductions if these changes in the tax code are put into effect.)
In fact, even if they still chose to itemize the mortgage interest deduction will be far less valuable under this new code. Suppose that they had $10,000 in property taxes that are deductible and pay $15,000 a year in mortgage interest and have no other deductions. Since the combined total of $25,000 exceeds the $24,000 standard deduction, it would pay for this couple to itemize; however, the benefit is much smaller.
Their benefit from itemizing is just the difference between their itemized deductions and the standard deduction. In this case, this difference reduces their taxable income by $1,000, saving them $250 on their taxes if they are in the 25 percent bracket. If we still had a $12,000 standard deduction, their itemized deductions would be reducing their taxable income by $13,000, saving them $3,250 on their taxes.
In short, by raising the standard deduction and reducing the number of itemized deductions that are available, the Republican tax proposals will be hugely reducing the value of the mortgage interest deduction even if they follow the Senate bill and don’t reduce the cap on deductible interest.
Addendum
Thanks to Robert Salzberg for calling my attention to the Tax Policy Center projection.
The NYT had a good piece discussing the potential impact of capping the mortgage interest deduction and property taxes on the housing market; however, the piece missed an important way in which the Republican tax bills would reduce the benefits of the mortgage interest deduction. The piece notes that doubling the standard deduction will reduce the number of people who itemize and therefore benefit from the mortgage interest deduction.
But both bills also end the deduction for state and local income taxes. Without this deduction, most homeowners will have few other deductions apart from their mortgage interest and whatever is allowed for property taxes. These deductions will be less for almost everyone than their standard deduction ($24,000 for a couple). This means that they would just take the standard deduction and the mortgage interest deduction would be of no value to them. (The Tax Policy Center projects that just over 5 percent of tax filers would still itemize their deductions if these changes in the tax code are put into effect.)
In fact, even if they still chose to itemize the mortgage interest deduction will be far less valuable under this new code. Suppose that they had $10,000 in property taxes that are deductible and pay $15,000 a year in mortgage interest and have no other deductions. Since the combined total of $25,000 exceeds the $24,000 standard deduction, it would pay for this couple to itemize; however, the benefit is much smaller.
Their benefit from itemizing is just the difference between their itemized deductions and the standard deduction. In this case, this difference reduces their taxable income by $1,000, saving them $250 on their taxes if they are in the 25 percent bracket. If we still had a $12,000 standard deduction, their itemized deductions would be reducing their taxable income by $13,000, saving them $3,250 on their taxes.
In short, by raising the standard deduction and reducing the number of itemized deductions that are available, the Republican tax proposals will be hugely reducing the value of the mortgage interest deduction even if they follow the Senate bill and don’t reduce the cap on deductible interest.
Addendum
Thanks to Robert Salzberg for calling my attention to the Tax Policy Center projection.
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Yes, David Brooks actually said this. The context is his column noting the complaints against the big tech companies. After going through the list Brooks tells readers:
“The political assault on this front [against the monopoly power of the big tech companies] is gaining steam. The left is attacking tech companies because they are mammoth corporations; the right is attacking them because they are culturally progressive. Tech will have few defenders on the national scene.”
It is hard to believe that anyone with even a passing knowledge of U.S. politics could say something so ridiculous. Tech has hundreds of billions of dollars to throw at politicians, think tanks and other academics, and to buy media outlets in addition to the Internet sites it already controls.
Everywhere outside of David Brooks’ World, people respond to money. The one thing we can be absolutely certain of is that there will no shortage of prominent individuals happy to defend tech on the national scene. My guess is that the tech giants won’t see the need to follow Brooks’ agenda as the only road to salvation. They are more likely to just buy up another think tank or two.
Yes, David Brooks actually said this. The context is his column noting the complaints against the big tech companies. After going through the list Brooks tells readers:
“The political assault on this front [against the monopoly power of the big tech companies] is gaining steam. The left is attacking tech companies because they are mammoth corporations; the right is attacking them because they are culturally progressive. Tech will have few defenders on the national scene.”
It is hard to believe that anyone with even a passing knowledge of U.S. politics could say something so ridiculous. Tech has hundreds of billions of dollars to throw at politicians, think tanks and other academics, and to buy media outlets in addition to the Internet sites it already controls.
Everywhere outside of David Brooks’ World, people respond to money. The one thing we can be absolutely certain of is that there will no shortage of prominent individuals happy to defend tech on the national scene. My guess is that the tech giants won’t see the need to follow Brooks’ agenda as the only road to salvation. They are more likely to just buy up another think tank or two.
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Tyler Cowen tells us in this Bloomberg piece that the Republicans are right to say that their plans for a big cut in the corporate tax will boost investment. (He is still opposed to the overall package.) I’ve had several people ask me about this one. I’ll give the usual economists’ answer: it depends.
If the argument is that other things equal, more cash in corporate coffers means more investment, I’m with Tyler. If we throw a huge pile of money at corporate America, at least some of it has to end up being invested, so Tyler is right on this point.
On the other hand should we expect the investment boom projected by the White House and Tax Foundation, where the capital stock will be 30 percent higher in ten years as a result of the tax cut? That one seems pretty nutty. (Tyler doesn’t endorse this view.) There are and have been large disparities in after-tax rates of return between countries. The argument for an investment boom depends on an equalization in after-tax rates of return across countries. (I know, we can wave our hands and explain that by risk premia, but that is just hand waving.) There is little reason to believe that a change in the corporate income tax rate will have a huge effect on investment, even if we can say the direction is to raise it.
It is also worth asking about the other things equal assumption. Suppose that the Fed sees higher projected deficits and decides it has to raise interest rates faster and further. It is entirely possible that these interest rate hikes more than offset any positive effect that the tax cuts have on investment, resulting in a net negative.
Another possibility is that the larger deficits embolden the deficit hawks who then take the hatchet to transfer programs like Social Security, Medicare, and food stamps. The vast majority of this money is spent quickly by the people who get it. The reduction in demand from cuts to these programs could lead to a fall in demand in the economy, thereby reducing the incentive for firms to invest.
We can also envision a story in which state governments are forced to reduce taxes, since their residents can no longer deduct state and local taxes from their federal income taxes. This could lead to a reduction in spending on infrastructure and education, which could also have a negative effect on private investment.
In addition, taxing tuition waivers for grad schools could drastically reduce the supply of new graduates in computer sciences, biotech, and other areas requiring highly skilled workers. This could also lead to less investment.
In all of these cases, the net effect of the Republican tax package could be to reduce investment, but Tyler is right that the immediate effect of a cut in corporate taxes should be to raise investment.
Tyler Cowen tells us in this Bloomberg piece that the Republicans are right to say that their plans for a big cut in the corporate tax will boost investment. (He is still opposed to the overall package.) I’ve had several people ask me about this one. I’ll give the usual economists’ answer: it depends.
If the argument is that other things equal, more cash in corporate coffers means more investment, I’m with Tyler. If we throw a huge pile of money at corporate America, at least some of it has to end up being invested, so Tyler is right on this point.
On the other hand should we expect the investment boom projected by the White House and Tax Foundation, where the capital stock will be 30 percent higher in ten years as a result of the tax cut? That one seems pretty nutty. (Tyler doesn’t endorse this view.) There are and have been large disparities in after-tax rates of return between countries. The argument for an investment boom depends on an equalization in after-tax rates of return across countries. (I know, we can wave our hands and explain that by risk premia, but that is just hand waving.) There is little reason to believe that a change in the corporate income tax rate will have a huge effect on investment, even if we can say the direction is to raise it.
It is also worth asking about the other things equal assumption. Suppose that the Fed sees higher projected deficits and decides it has to raise interest rates faster and further. It is entirely possible that these interest rate hikes more than offset any positive effect that the tax cuts have on investment, resulting in a net negative.
Another possibility is that the larger deficits embolden the deficit hawks who then take the hatchet to transfer programs like Social Security, Medicare, and food stamps. The vast majority of this money is spent quickly by the people who get it. The reduction in demand from cuts to these programs could lead to a fall in demand in the economy, thereby reducing the incentive for firms to invest.
We can also envision a story in which state governments are forced to reduce taxes, since their residents can no longer deduct state and local taxes from their federal income taxes. This could lead to a reduction in spending on infrastructure and education, which could also have a negative effect on private investment.
In addition, taxing tuition waivers for grad schools could drastically reduce the supply of new graduates in computer sciences, biotech, and other areas requiring highly skilled workers. This could also lead to less investment.
In all of these cases, the net effect of the Republican tax package could be to reduce investment, but Tyler is right that the immediate effect of a cut in corporate taxes should be to raise investment.
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I had a post that took issue with a WaPo Fact Checker saying that the Republican tax plan will not actually kick 13 million people off insurance. Rather, they will opt not to buy it if they are not required to. I had misunderstood the Congressional Budget Office’s analysis and thought it projected premiums would rise 10 percent a year as a result of this change. In fact, they project a cumulative increase of 10 percent.
I had a post that took issue with a WaPo Fact Checker saying that the Republican tax plan will not actually kick 13 million people off insurance. Rather, they will opt not to buy it if they are not required to. I had misunderstood the Congressional Budget Office’s analysis and thought it projected premiums would rise 10 percent a year as a result of this change. In fact, they project a cumulative increase of 10 percent.
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