The voices of Tax Policy Center's researchers and staff
“What are you mad at?”
For four decades, Ward Hussey was a House staffer who played a major role in drafting tax legislation. To help clarify the intent of a bill, that’s a question Mr. Hussey would often ask its sponsor. His query reflects a basic tenet of tax policy: If you want less of something, tax it. But what happens when policymakers are not just trying to change economic behavior?
What happens when they’re also mad at a “who” — an individual or an organization — and want to use the tax code to get even? Political affiliation aside, this happens much too often. It shouldn’t, and not just because the world would be a better place if policymakers weren’t mad all the time (though it certainly would be).
The tax code isn’t the most effective or efficient tool to exact revenge on political enemies, and using the tax system to get even diminishes the code’s credibility with voters. A few examples about billionaires, state and local taxes, churches and tariffs illustrate why.
"Billionaires shouldn’t exist.”
Democratic presidential candidate Bernie Sanders doesn’t “think that billionaires should exist.” He wants to reduce the “outrageous and grotesque and immoral level of income and wealth inequality” by “telling the wealthiest families in this country they cannot have so much wealth.” His plan: levy a wealth tax starting with 1 percent on married couples’ wealth in excess of $32 million that gradually would climb to 8 percent on assets in excess of $10 billion. Sanders’s rival for the Democratic nomination, Elizabeth Warren, has proposed a similar tax, though with somewhat lower rates.
But wealth taxes can be inefficient and hard to collect, as my TPC colleague Howard Gleckman explains. Billionaires inevitably will find ways around at least some of the tax. Perhaps Sanders and Warren could wage a stronger attack on wealth inequality by focusing on ways to raise the incomes of low- and moderate-income households rather than trying to collect a potentially confiscatory tax on the super-wealthy.
“Let’s SALT the earth in blue states.”
The federal individual income tax includes about 170 tax expenditures. While some early versions of what became the Tax Cuts and Jobs Act (TCJA) would have eliminated or sharply scaled back many of them, the final bill focused on just a handful.
The biggest, by far, was the state and local tax deduction that congressional Republicans scaled back to $10,000 through 2025. That was intentional: States with the highest taxes—and the most services funded by those taxes—tend to be Democratic blue.
The GOP expected that the wealthier, itemizing taxpayers in blue states would react to this deduction cap and move to lower tax states. Middle-income earners who might no longer be able to deduct their state tax payments would suffer and blame their state’s lawmakers, and blue state budgets would bleed.
The problem: A tax widely perceived as a partisan attack on a handful of states is fundamentally unstable. It is scheduled to expire after 2025 and will likely last only as long as Republicans control the White House and Congress.
Besides, if the GOP intended to punish blue states, in the short run it hasn’t exactly worked. Bloomberg reports that New York state tax revenues climbed by $3.7 billion in April 2019 compared to the prior year. New Jersey, California, and Illinois enjoyed similar windfalls. The jury is still out on the longer-term effects.
“Some churches should pay taxes.”
Former Democratic presidential candidate Beto O’Rourke argued that churches and religious organizations that oppose same sex marriage should lose their tax-exempt status. Even those who appreciate O’Rourke’s passionate defense of equality and his ire toward those who might deny it should appreciate the First Amendment. And for that matter, the 16th Amendment: It gives the government the primary role of collecting revenue, not enforcing the political views of policymakers.
My TPC colleague Robert Weinberger noted as much in his recent TaxVox post on a House Ways & Means hearing. At the hearing, Eugene Volokh, a professor at the University of California School of Law, testified that “tax exemptions have to be distributed without discrimination based on viewpoint; that means that evil views have to be treated the same way as good views.”
Who gets to decide what’s evil or good? Is it the president? Is it an IRS official?
Even if we can answer those questions, more questions follow. Washington Post columnist Michael Gerson wonders how the agency would decide if, for example, “one United Methodist church is in violation of the new IRS rule and another is not? By the minister’s view…[or] the majority position of the congregation?” By law, the IRS cannot take a position on the viewpoints expressed. Would the IRS really want to? Would we really want it to?
It is not just the tax code that can be used to get even. There’s also trade policy.
“China is raping our country.”
Talk about exacting revenge. President Trump imposed tariffs—taxes on imports of goods—on hundreds of billions of dollars of Chinese imports to quite literally make that nation pay: “China devalues their currency, they pour money into their system. Because of that, you’re not paying for those tariffs. China’s paying for those tariffs. Until such time as there is a deal, we will be taxing the hell out of China.”
But tariffs are a counterproductive trade tool. In fact, as nearly all economists know, and now automakers and small businesses are learning, domestic companies pay the tariffs on imports of goods the minute they cross US borders. For the most part, they pass the extra cost onto their consumers. Because target countries impose tariffs in response, both sides lose. And China retaliates, as US farmers can tell you.
Revenge is sweet. But in tax policy, revenge is shamefully messy.
Sanders and Warren want to reduce the wealth of billionaires and inequality. But those billionaires know how to minimize their taxes. The GOP wanted to hurt blue states, but so far, the effort has barely nicked them. Beto wants to tax churches. But the Constitution gets in the way. Trump wants to punish China for hurting US producers. But US businesses and consumers are paying instead.
How do taxpayers perceive these efforts? I can only speak for myself: It’s exhausting. Worse: These actions seem arbitrary and partisan. They make the tax code look nothing like an objective tool to raise revenue in an efficient and equitable way. Instead, these actions make the law look like a political cudgel, and government loses credibility as a result. Is that what policymakers want?
Taxpayers—voters—largely remain proud to pay their taxes. Why would policymakers risk losing that good will? Voters can get mad, too. And the voting booth—unlike the tax system—is a great place to get even. Always.
The Tax Hound, publishing once a month, helps make sense of tax policy for those outside the tax world by connecting tax issues to everyday concerns. Have a question or an idea? Send Renu an email.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.