Congressional Republicans pushing for tax cuts are already backing off one key component of their plan, but what remains of this imprudent approach continues to be both foolish and unfair, especially to a state as generous to Washington as New York is.
First of all, Congress’ putative conservatives are pushing a plan that would radically increase deficits. This, after decades of insisting that rising deficits count as a threat to the nation’s economic stability. Which is it?
Second, the plan would punish taxpayers in states that have their own income taxes by eliminating their deductibility. Of New York’s 27 members of Congress, only two support this approach and, sadly, both represent Western New York: Chris Collins, R-Clarence, and Tom Reed, R-Corning, whose district extends to the western Southern Tier.
It’s not the first time they’ve held a dagger to their own constituents; they did the same with their effort to change the way New York funds Medicaid. This one is especially galling, and for a couple of reasons. One, state income taxes relieve Washington of expenses that it might otherwise incur in those states.
Even more important is that this state is already a net donor to Washington. As the late Sen. Daniel Patrick Moynihan repeatedly pointed out – and it remains true – New Yorkers send more money to Washington than they ever get back in payments and services. And New Yorkers, by and large, don’t complain about that.
But for our own congressmen to further sabotage their own constituents is reprehensible. Congress has already backed off its similar plan to eliminate the deductibility of property taxes. It needs to drop this one, too. Collins and Reed seem pleased with their efforts to restore property tax deductibility, but that’s putting a coat of paint on a house you’ve set on fire. It’s not enough.
And speaking of insanity, Congress is also talking about capping the amount of money that Americans can save in their 401(k) accounts. What are they thinking?
These tax-deferred accounts, to which employers frequently contribute, came into being as defined-benefit pensions began going the way of the dinosaur. Such savings are an enormously popular – if still underused – method for American workers to save for their own retirements.
About 54 million Americans are making use of a 401(k). The attractiveness is that their owners pay taxes on that income only after they take the money out, usually at a lower rate. Currently, workers can contribute up to $18,000 a year to these accounts, but Congress is talking about slashing the maximum to $2,400. It’s self-defeating.
Unless Washington wants to get a whole lot more generous with Social Security payments – as unlikely as it is unwise – it needs to be in the business of encouraging Americans to plan for the day when they are no longer working. The more they can save, the less likely they will need public support for food, shelter and other necessities. Limiting those savings in favor of an unpaid and skewed tax cut makes no sense.
President Trump has said he won’t allow that 401(k) change to occur. That’s helpful, and if he remains committed to that position, it should help to change Congress’ mind. But Trump’s inconsistency is legendary and he craves the big legislative “win” that has been denied him since he took office more than nine months ago. It will be wise not to take his support for granted.
Congress may yet be able to make the case for tax cuts, but they have to make sense and they need to be paid for. As of now, they are neither. Republicans – especially two from New York – should know better.