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GOP Tax Plan Can Spur Change in High-Tax States

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Posted: December 19, 2017 at 11:00 am   /   by
By Joseph Semprevivo

Congress is on track to send President Trump a package of tax cuts by Christmas. By now, you’ve heard both sides state and restate their positions, with Democrats predictably denouncing “tax cuts for the rich” and Republicans making the case for pro-growth tax savings.

Where Democrats and several Republicans have found common ground is the state and local tax deduction, commonly known as SALT. Under the current tax code, Americans in high-tax states such as California and New York can deduct their state and local taxes when calculating federal income taxes. The separate bills passed by the House and Senate would scrap most state and local tax deductions but, in large part due to Sen. Susan Collins (R-ME), leave up to $10,000 in property tax deductions on the books.

While the final tax bill could very well keep SALT intact, Americans in high-tax states should hold the right party accountable for their current predicament. For decades, they have been let down by legislators who consistently favor higher tax rates to fund expensive government boondoggles masquerading as societal necessities.

Now these same legislators are scapegoating congressional Republicans for their own policies gone awry. House Minority Leader Nancy Pelosi (D-CA) has characterized SALT reform as a “devastating tax hike” on Californians. New York Gov. Andrew Cuomo went so far as to predict the apocalypse, claiming his state “will be destroyed” if the SALT deduction is changed.

As a small business owner, I rarely wade into political squabbles, but I’ve never seen such dishonesty. Over the years, Rep. Pelosi has supported a millionaire surtax on the top income bracket and an additional surtax of 5.4 percent on the top bracket, while opposing a permanent increase in the child tax credit. Citizens for Tax Justice, a liberal nonprofit, most recently gave her tax record a 100 percent score.

Gov. Cuomo is hardly a more credible messenger. Earlier this year, the governor threatened a 10 percent tax hike on all New Yorkers and a 26 percent hike on the middle class.

Americans in lower-tax states are effectively subsidizing Californians and New Yorkers through the SALT deduction. Under the watch of Gov. Jerry Brown, who has also publicly criticized Republican efforts, California’s top state income tax rate is the highest in the country at 13.3 percent.

Democratic governors would be better off keeping their financial house in order than undermining federal legislation. The SALT deduction is only the Band-Aid for high state and local rates—cutting them is the permanent cure that makes the deduction unnecessary.

States like California and New York are losing business to friendlier tax environments. The nonpartisan Tax Foundation ranks the Golden State’s tax climate as the 48th best in the country. Only New York and New Jersey are worse.

In my home state of Florida, which ranks 4th best in the country, Gov. Rick Scott has taken meaningful steps to alleviate the tax burden. Earlier this year, he signed a $180 million tax cut package focused on small business tax relief. The new law slashed taxes charged on business rent, saving our state’s small businesses more than $60 million a year.

High-tax states aren’t so fortunate. Between 2008 and 2015, more than 10,000 businesses either left California, reduced their in-state operations, or curtailed plans to move there. In 2014 alone, New York experienced nearly 7,000 job eliminations, many of them layoffs at small businesses.

I sympathize with these job creators and the people who depend on them. As the president and CEO of Joseph’s Lite Cookies, I run a family-owned, sugar-free cookie business, one of nearly 30 million small businesses around the country.

When small business fails, our economy bears the consequences. Therein lies the Republican tax plan’s greatest virtue. The Senate bill implements a 23 percent deduction on pass-through income—the income many small business owners pay at individual rates. The House bill, meanwhile, caps the maximum pass-through rate at 25 percent, leaving us with more resources to hire new employees and pursue expansion opportunities.

But my broader hope for Congress’ final legislative session is not $1,000 here and there in tax savings; it’s a reinvigorated conversation on tax policy. With SALT and other details in the news, Americans in our highest-taxed states face a unique opportunity to hold tax-happy Democrats accountable for their anti-growth policies.

If Democrats truly cared about taxpayers, they would reject demagoguery and embrace tax cuts.

 

Joseph Semprevivo is the president and CEO of Joseph’s Lite Cookies in Florida. He is an adjunct professor of finance, real estate and insurance at Indian River State College and the author of “Madness, Miracles, Millions.”

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GOP Tax Plan Can Spur Change in High-Tax States