COURRÈGES: Mayor Landrieu and Rep. Richmond Reveal Chutzpah in Op-Ed Condemning Tax Reform as Bad for Cities

New Orleans Mayor Mitch Landrieu and U.S. Rep. Cedric Richmond penned an op-ed for CNBC last Friday that condemned the GOP tax bill as bad for “families in cities and communities of color.”  However, their arguments are far from persuasive, and ultimately they don’t comport with what the compromise bill actually provides. Here’s their reasoning:

Any tax reform bill should be measured by its potential to create jobs and strengthen our communities. This bill will do neither. By eliminating popular tax deductions and removing essential financing options and tax credits, the GOP tax bill would prove disastrous for middle class families and the cities they live, work and play in.

For example, the tax reform bill threatens the State and Local Tax (SALT) deduction. This deduction – one of the most popular and frequently used portions of the tax code, for over one hundred years – ensures the federal government does not tax the dollars used to pay state and local taxes. Abridging it, then, would effectively force Americans to pay taxes twice on the same income. When families support their schools and police forces, they should rest assured that the federal government won’t tax those dollars again.

This double taxation scheme is built entirely on Congress’ failure to balance its books responsibly. It will spike annual bills in middle class households – 43 million of them, according to the Government Finance Officers Association – from coast to coast to benefit big business; Speaker Ryan and his colleagues plan to allow corporations to retain the SALT deduction, even as they remove it for everyone else. It’s the kind of proposal that could only come out of a partisan process.

But the writers of the Republican tax bill don’t just have it out for families living in cities and towns. This bill amounts to a full-fledged assault on those cities and towns themselves. By calling for the elimination of key bonds and tax credits, Congress seems to be insisting that local governments support important economic and social priorities entirely on their own, even as some communities continue to recover from the economic crisis or other crises like this summer’s major storms.

For years, cities have used federal bonds to support projects they know will be effective. They frequently use Private Activity Bonds to fund critical infrastructure like health care facilities, airports, and affordable housing. Tax credit bonds help them renovate schools. One particularly helpful federal program allows cities to repay their debt in advance, which saves taxpayers millions every year. All of those provisions have found their way to Congress’ chopping block.

We’re also worried about the proposed repeal of the New Market Tax Credit, which grows urban economies and create jobs – to the tune of $75 billion in investment in underserved communities, including those represented by CBC members. The proposed repeal of the Work Opportunity Tax Credit will depress employers’ efforts to hire new workers. By striking the Historic Preservation Tax Credit, we’ll likely lose investments in rehabilitating historic buildings that give our cities character and honor our heritage.

Let’s address each of these supposed concerns individually.  Broadly, they fall into two major categories:

The SALT Deduction.

The first problem with deducting state and local taxes from federal taxes, a problem Landrieu and Richmond gloss over, is that it encourages state and local governments to raise taxes because taxpayers get an equivalent deduction. The higher state and local taxes are, the greater the benefit. Jurisdictions that keep taxes low are effectively punished.

The second problem is that the benefits from SALT deductions are overwhelmingly claimed by the wealthy. More than three quarters of the benefits from SALT deductions are claimed by people earning greater than six-figures.  The GOP bill, mindful of this problem, limits the SALT deduction for property taxes to $10,000, so that only people with very high-value properties will see a change.  Landrieu and Richmond completely ignore this.

Consequently, Louisiana would be among those states that would see the fewest households with a tax increase as a result of modifying SALT deductions.  The biggest losers would be in Democratic strongholds along the West Coast and in the Northeast. Indeed, I would argue that by highlighting the GOP tax bills changes via SALT deductions right out of the gate, deductions that do not, on balance, benefit ordinary Louisianans, Landrieu and Richmond are placing party loyalty above the good of the state.

Finally, according to a recently-released study by the official, nonpartisan Joint Committee on Taxation, middle class persons will see the largest reductions in their tax bills under the GOP tax reform bill.  Far from advocating for the common man, Landrieu and Richmond are shilling for party and the economic elite.

Private Activity Bonds and various tax credits.

Richmond and Landrieu speak generically about the “repeal of key bonds and tax credits,” but they only mention one bond program and three tax credits.  First, they discuss Private Activity Bonds, which are low-cost bonds used to fund things like hospitals and affordable housing, and they are popular on both sides of the aisle.  However, the final House bill eliminated them, while the final Senate bill left the intact.

The piece then addresses the possible repeal three tax credits: the New Market Tax Credit, which provides a tax credit to investors who put money into impoverished communities with a lack of private investment, the Work Opportunity Tax Credit, which encourages hiring, and the Historic Preservation Tax Credit, which encourages the renovation of historic properties (a big deal for New Orleans in particular).  Again, the House version of tax reform would have eliminated these tax credits.

Although nothing is presently set in stone (anything can change before a final vote), the latest version of the compromise tax reform bill keeps Private Activity Bonds and and all three of the tax credits intact.  In other words, there doesn’t appear to be much of an issue at all with these programs.  The concerns being raised by Landrieu and Richmond aren’t even current.  Even last week when this piece was presumably written, it was fairly obvious that the terms of the Senate bill would likely be adopted in negotiations.

In short, Landrieu and Richmond’s only complaints with tax reform pertain to modifications to SALT deductions, which mainly affect the wealthy and are predicted to have little impact on Louisiana taxpayers, and the loss of an assortment of “bonds and tax credits” that the compromise bill actually retains.

That’s not much of an argument.  Again, if one were cynical, one might accuse this of being a partisan screed that struggles to effectively argue that tax reform negatively impacts the needs of cities, or at least cities in Louisiana.  On that score, feel free to call me a cynic.

Owen Courrèges is an attorney living in New Orleans.  He has previously written for Uptown Messenger, the Reason Foundation, and the Lone Star Times. 

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