Thursday, August 5, 2010

Rep Nadler Wants Carve-Out for “Rich” NYC Residents in Bush Tax Cut Expiration

If Congress Creates Legislation Exempt Class to Minimize Effect -  
Isn’t That Just a Sign of Bad Policy?

Photo Credit - Flickr Creative Common
Americans know Congress routinely exempts itself from legislation they enact. This has been going on for decades. These exemptions stick a thumb in the eye of the original integrity of the Founding Fathers mandating laws be “of the people, by the people, and for the people”.

They specifically did not want lawmakers who were above the law. This was to ensure good laws. They wanted to protect Americans from a ruling and a non-ruling class. They knew there was a danger in having lawmakers whom were outside the laws they wrote.

A recent example of our “anyone but me” lawmakers’ arrogance is the legislators’ exemption in the healthcare reform. The law also contains a significant tax hike by imposing income tax on the value of a good insurance plan – a Cadillac plan. Congress expanded the “anyone but me” class to be the “anyone but me and my significant special interest contributors” class. Congress exempted the special interest Union class from this income tax hike.

Did the Unions scream for this carve-out for any reason other than the astronomical cost to their members it would represent? If Congress had to ensure an exemption class for this financial hardship effect, isn’t that a sign of bad policy all around for all Americans?

Congress is encouraging letting the Bush tax cuts expire. Democrats are split on whether tax cuts should expire for all or just for those Americans they have defined as rich. Some Democrats and all Republicans believe raising taxes in today’s weak economy is bad policy. Most prefer to leave the discussion until after the November elections.

In the heat of the discussion, exemption legislation is being put forth by U.S. Congressional members from New York. Representative Jerrold Nadler (D-NY) wants legislation to provide income tax rate adjustments for regional costs of living. Additional Democrats from New York City, Long Island, and surrounding areas are sponsoring the carve-out for their high-income earners - Carolyn McCarthy, Carolyn Maloney, Tim Bishop, Steve Israel, and Nita Lowey.

If this were to pass on its own or be slipped into another bill, the “rich” that Congress and the White House routinely demonize would be exempted from the effect of the tax increase. Are these New York Representatives acknowledging tax increases, even those on the highest income families in the country, would have a devastating impact on all Americans?

Other liberal policy cities like San Francisco would be included in this exemption adjustment for “high cost of living areas”. Who makes up the difference - those in rural areas or more fiscally conservative cities and states should subsidize more fiscally liberal areas? Using this logic, should this adjustment policy be made for the state income tax rates for New York State too? If it costs less to live in Albany or Syracuse, should these residents pay a higher percentage (without adjustment) than those living in Manhattan (with adjustment) per dollar?

Photo Credit - Flickr Creative Common
But wait a minute, President Obama and Democrat congressional members have been promoting for two years the Bush tax cuts are what caused the recession. The evil rich have not been paying enough – they have not been patriotic enough right? Doesn’t VP Joe Biden believe it would be unpatriotic for New York Representatives to have their high income voters pay less in taxes?

The premise of Representative Nadler’s argument is wrong. The dollar is worth the same whether you live in Texas or New York. The difference is the costs of things in New York are higher than in Texas as an example. Any city in the country with more regulation, more state and local taxes, higher property taxes, higher legacy pension cost, and more entitlement spending is going to cost more for residents to live there. This is directly the high cost city’s fault.

Rewarding big spending cities by shielding their high income earners from federal income tax hikes is not an answer to bad policy. Ironically these are usually the same cities that have liberal representation in state and federal governing bodies whom enact high cost regulation and big spending policies. Should the people in Texas subsidize the people in New York, so they can continue their more liberal policies without equitable consequences?

High population areas naturally already receive a larger portion of federal monies in reality. Why should someone in Montana or Iowa be penalized by being forced to support destructive policies legislated in states like New York and California? In reality, the federal tax code already subsidizes higher cost states through the deductibility of state and local income and property taxes – well for now anyway.

Apparently some in Washington may just be realizing that if they raise taxes by allowing the Bush tax cuts to expire, their policies are going to impact their voters the most. It will also impact their states in general, because many residents will consider the “overall” tax liability of living in a higher tax state and move them and possibly their business to a lower tax state. Washington is also hot to discontinue current tax deductions like state and local taxes, mortgage deductions, and others in their never ending search for money they feel they rightfully need and deserve.

Speaker Nancy Pelosi said unemployment benefits were good for the economy and created jobs. She meant having money in your wallet to purchase goods stimulates the economy. Does collecting more in income taxes put more money in any wallet but the politician to spend? Who knows how to spend money most efficiently for their family?

Tax cuts do increase economic activity which does increase government revenue. History has shown this under President’s Kennedy, Reagan, Clinton, and GW Bush. The bottom line is the tax cut debate is a perfect example of legislation that needs an exemption to ensure the effect is not felt is really just a sign of it being bad policy in general.

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