Let’s look today at two of the worst public policy ideas, proposals that are so economically illiterate that they get support only from very dogmatic leftists.
- We’ll start with the deduction for state and local taxes. Since I’m a fan of the flat tax, I don’t like loopholes in the tax code. But some are worse than others.
You can make a strong argument that the worst special tax breaks are the fringe benefits exclusion and the muni-bond exemption, but I have special disdain for the state and local tax deduction.
Before it was curtailed by the 2017 Tax Cut and Jobs Act, that loophole basically gave a huge subsidy to leftist policies in high-tax states. When California and New York imposed ever-higher tax rates, the sting of those bad policies was lessened because taxpayers (especially rich taxpayers) could use those tax payments as a deduction when figuring out their federal tax bills.
In effect, some of the tax burden was being shifted to taxpayers in sensible states, such as Florida and Texas.
That’s bad, but here’s something that may be even worse.
- Another terrible idea in Washington is to impose price controls on credit card interest rates.
Financial companies take big risks when they give consumers credit cards. When we use those cards, we are using their money and not our money, and the sad reality is that some of us then don’t pay those bills.
To compensate for that inevitable risk, the companies have various ways to make money, such as imposing a small fee on transactions, imposing annual fees, and charging interest on unpaid balance. The net effect is that financial companies wind up with small profit margins.
But what happens if politicians impose arbitrary price controls on interest charges?
The obvious and inevitable response – based on centuries of evidence showing the negative impact of price controls – will be that financial companies are forced to cancel credit cards for people with lower incomes and/or weaker credit histories.
Let’s now close this column with a quiz. Which big-government politician from New York supports both of these awful policy proposals, Donald Trump or Alexandria Ocasio-Cortez?
It’s a trick question because the answer is both of them.
To be fair, you sometimes get good policies from both AOC and Trump. But can you trust either one of them to do the right thing when they embrace some of the worst ideas floating around Washington?
P.S. Sadly, Trump’s embrace of the state and local tax deductions would reverse one of the genuine accomplishments of his presidency.
P.P.S. It goes without saying that Kamala Harris supports both bad tax policy and price controls, so perhaps we are looking at a ménage à trois of statism.
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Image credit: nrkbeta | CC BY-SA 2.0.