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Associated Press

Saturday, July 22, 2017 | 1 a.m.

WASHINGTON Republicans aren't usually big on raising taxes, but they're really eager to eliminate the federal deduction for state and local taxes.

Why? A look at the states that benefit the most from the tax break helps explain it they are all Democratic strongholds. New York, Connecticut, New Jersey and California top the list of states where taxpayers get the biggest deductions. Not a single Republican-leaning state ranks in the top 10.

"Although Republicans usually recoil at any type of tax increase, cutting this tax break would almost be fun for them," said Martin Sullivan, chief economist for Tax Analysts. "It provides massively disproportionate deductions to high-tax states controlled by Democrats."

Proposals by House Republican leaders and President Donald Trump would repeal the tax break as part of their packages to overhaul the American tax code. But they are getting a lot of pushback from Republican lawmakers in Democratic-controlled states.

The standoff illustrates how hard it is for Congress to eliminate any popular tax break, even one that primarily benefits the ruling party's political opponents.

Almost 44 million claimed the deduction in 2014, according to IRS statistics. That's nearly every taxpayer who itemizes deductions, a little less than 30 percent of all taxpayers. Sullivan analyzed which states would be hit hardest by repealing the tax deduction. The Associated Press did a similar analysis and came to the same conclusion.

Nationally, the average deduction is about $11,800, but it is much bigger in many blue states. New York is tops with an average deduction of more than $21,000. Connecticut is next at $18,900, followed by New Jersey at $17,200 and California at $17,100.

These are states with high property values, high costs of living, high incomes and relatively high state and local taxes compared to other states. They are also states President Donald Trump lost in last year's election. Though the president is from New York, he lost the state to Democrat Hillary Clinton by 22 percentage points.

The highest-ranked state won by Trump is Wisconsin, which came in at No. 13, with an average deduction of $11,300.

At the bottom is Alaska, with an average deduction of $4,800. It is followed by Tennessee and Alabama. Among the bottom 10 states, Nevada and New Mexico are the only ones won by Clinton.

The deduction allows taxpayers to write off real estate taxes, and state and local income taxes. If your state doesn't have an income tax, you can deduct sales taxes. The deduction is heavily weighted to families with high incomes. Seventy-five percent of the benefits went to families making more than $100,000.

Rep. Kevin Brady, R-Texas, says eliminating a tax break that helps some people will help lawmakers lower tax rates for everyone.

"We're proposing a much simpler code with lower rates where everyone gets help whether they are paying their state and local taxes or they are putting their kids in college," said Brady, who chairs the tax-writing House Ways and Means Committee.

Eliminating the tax break would raise $1.3 trillion over the next decade, according to the nonpartisan Tax Policy Center, money that could be used to help pay for lower income tax rates.

The House Republican plan would eliminate most itemized deductions while nearly doubling the standard deduction, to $24,000 for married couples. Notably, the plan would keep the deductions for mortgage interest and charitable contributions.

The White House and congressional Republicans have been privately negotiating their tax package for weeks, with no public sign that they're near a consensus. Democrats have been excluded from the talks.

Some Republicans claim the deduction for state and local taxes encourages states to spend and tax more because the taxes can be deducted at the federal level. Some also complain that the deduction forces low-tax Republican states to subsidize high taxes in Democratic states.

However, many blue-state Republicans don't buy those arguments. They note that most high-cost blue states send more tax dollars to Washington than they receive in federal benefits. And who benefits from those tax dollars? Low-cost red states where incomes are generally lower.

"If we're going to have a discussion about who is subsidizing whom, it must be across the board. It can't be just one provision," said Rep. Leonard Lance, R-N.J.

Lance is teaming up with Rep. Bill Pascrell, Jr., D-N.J., in an effort to maintain the tax break.

"In New Jersey, (the deduction) encourages very strong public schools," Lance said. "I want to maintain strong public schools. For there to be strong public schools, there has to be adequate spending."

Rep. Tom MacArthur, R-N.J., said he brings up the deduction every time he sees Treasury Secretary Steven Mnuchin, one of Trump's top advisers on taxes.

"The minute he walked into the room and saw me he pointed and said, 'I know, state and local tax deduction,'" MacArthur said.

"I know the White House is committed to bringing taxes down for everybody," MacArthur said. "But people in high-tax states under the plan they're proposing would basically be at a break-even while everyone else in the county enjoys tax relief. That's not fair."

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Republicans embrace tax hike targeting Democratic states - Las Vegas Sun

Republican lawmakers on Thursday were unsure of whether they would be able to find the votes to pass their 2018 budget plan anytime soon, even though the plan was easily approved in the House Budget Committee a day earlier.

The GOP needs a budget to pass tax reform this year, since the budget will set up privileged legislation on tax reform that couldn't be filibustered by Democrats in the Senate.

Majority Leader Kevin McCarthy did not schedule the fiscal year 2018 budget resolution "Building a Better America, for a vote next week, which is the final legislative session before a scheduled five-week recess.

McCarthy told the Washington Examiner GOP leaders are going to determine the level of Republican support for the measure, which is to serve as the legislative vehicle for tax reform, a top Republican agenda goal. Conservatives and moderates are at loggerheads over the size of domestic spending cuts, and lawmakers are also clamoring for information about the undisclosed tax plan that is to serve as the centerpiece of the legislation.

"We are working through it," McCarthy told the Washington Examiner.

Prospects for the measure were bolstered Wednesday night when the House Budget Committee passed it along party lines without any Republican defectors, even though some conservative critics sit on the panel.

Conservative Dave Brat, R-Va., was among the lawmakers who voted for the bill after criticizing it. Brat was seeking to double the $203 billion in domestic spending cuts called for in the $4 trillion plan and said he has not decided whether he will back the bill on the House floor.

"We should have done more to tackle mandatory spending levels in this budget," Brat said in a statement. "While I am not happy with some of this budget product and am not yet prepared to vote for it on the House floor, passing it out of committee is an important step in keeping our promise to keep tax reform momentum and get it on President Trump's desk. I hope conservative concerns can be adequately addressed through an amendment process on the House floor."

Another Budget Committee Republican who voted for the plan, Rep. Mark Sanford, R-S.C., may not vote for final passage, a GOP aide said.

Rep. Mark Meadows, R-N.C., who is chairman of the conservative House Freedom Caucus, told the Washington Examiner that more than three dozen lawmakers do not support the budget plan, which is enough to sink the legislation since it must pass entirely with GOP votes.

Moderate Republicans, meanwhile, say the spending cuts in the budget are too steep.

"I've got concerns," Rep. Charlie Dent, R-Pa., told the Washington Examiner.

No Democrats back the plan, in part because it cuts domestic spending and spends more on defense. The GOP plan would fund the domestic discretionary budget at $511 billion and the defense budget at $621.5 billion.

Meadows noted that the House has begun the process of passing 2018 spending bills, moving forward without waiting for a budget resolution to pass. In that way, the budget plan doesn't matter much to Republicans as a guide for upcoming spending bills.

"We are already appropriating, so it doesn't matter," Meadows said.

But the budget does matter to Republicans because it will set up a path for tax reform legislation that can be more easily passed in the Senate under the so-called reconciliation process. For that reason, Meadows believes Republicans should drop plans for a budget until they develop a tax reform plan and then try to pass the budget.

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Republican budget at risk in the House - Washington Examiner

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Republican rift over Medicaid, familiar to Kansans, now stymies Obamacare repeal Kansas City Star When Vice President Mike Pence complained recently that the Affordable Care Act's Medicaid expansion had put able-bodied adults ahead of people with disabilities, Ohio Gov. John Kasich, a fellow Republican, quickly jumped in to dispute that and ... and more »

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Republican rift over Medicaid, familiar to Kansans, now stymies Obamacare repeal - Kansas City Star

In a vote that has been described as an assault on democracy by European officials, the Polish Senateis expected to approve a rushed and controversial law on Friday that would retire all Supreme Court judges and allow the presidentto replace themwith more favorable alternatives.

[Polish parliament expected to approve measure stripping Supreme Court of independence]

Proposed by the ruling right-wing Law and Justice (Pis) party, the legislation has been widely condemned as the mostworrying development in a country where democratic institutions are under mounting pressure. If passed, thechanges would constitutean unprecedented attack on judicial independence,according to ajoint statement by leading judges from the neighboring Czech Republic.

It is only the latest of many unprecedented attacks.

Only two years ago, Poland was widely considered a success story that had managed to seemingly leavebehindits communist past, and turned into a robust role model democracy praised by officials across the European Union.

Now, it is becoming a case study for why liberal democracy should not be taken for granted. The Polish government has pursued a number of strategies to weaken its opponents and democratic institutions, including repressions against journalists or judges and the dissemination of conspiracy theories, which preceded Friday's vote.

A populistelection campaign that paved the way

When Polish voters decided it was time for a new, populist administrationtwo years ago,the reasons for the election outcomeappeared hard to understand from the outside. Poland's economy had grown by nearly 50 percent over the previousdecade, benefiting from an integration with the rest of the continent.

But the landslide victory of Poland'sright-wing and anti-E. U. Law and Justice partyrevealeddeeper divisions, which were harder to measure than the country's GDP.Senior party officials took a decidedly anti-immigration stance in the days beforethe election, even warning that migrants might carry dangerous diseases.

The timing was right for the Law and Justice party. Europe faced the peak of its massive refugee influx in the second half of 2015, which provokedfears in more conservative nations, like Poland, and ultimately pavedthe way for Law and Justice's victory. In particular, rural voters there had long felt neglected by their previous government and complainedthat economic prosperity had not been accompanied by improved social services.

Repressions against journalists

With its sweeping mandate, Law and Justice quickly began to consolidate its power. The country's public broadcaster, TVP Info, essentially turned into a mouthpiece of the government months after the election. Through amendments to the country's media law, the government gained control over the public media network's executives, which triggered the resignation of more than 140 employees.

Soon thereafter, the government went after independent newspapers and broadcasters, as well. It attemptedto limitthe number of journalists allowedaccess to parliamentbut had to abandonthe plans after large-scale protests.

As a result, Poland's ranking in the Press Freedom Index dropped to partly free this year due to government intolerance toward independent or critical reporting, excessive political interference in the affairs of public media, and restrictions on speech regarding Polish history and identity, which have collectively contributed to increased self-censorship and polarization, according to Freedom House, a nongovernmental organization based in Washington.

Despite international protests, the government's control over state media outlets has created a parallel reality in parts of Polish society, where protests against the illiberalLaw and Justice party are being portrayed as a coup against the democratically elected government.

Conspiracy theories

State media outlets have alsorepeated some of the conspiracy theories that have further deepened divisions in the country over the last two years. Law and Justice leaderJaroslaw Kaczynski has blamed former Polish prime minister and current president of the European Council, Donald Tusk, for somehow beingcomplicit in the death ofKaczynski's twin brother seven years ago.

Tuskcampaigned for Law and Justice'srival party, the liberal-conservative Civic Platform, and was prime minister in 2010 when President LechKaczynski died in a plane crash in Russia. Kaczynski's Law and Justice party has long believed that the crash was not an accident but an assassination.

Last year, the party pushed for theexhumation of the bodies of the 96 victims to investigate thetheory, but critics have said the move was timed to stoke anti-European Union tensions. There is no evidence to proveKaczynski's suspicions.

The government vs. the justice system

The emergence of investigations that are being criticized as politically motivated by critics hasbeen accompanied by a parallel effort to restrict the independence of judges.

Friday's vote on the Supreme Court law is only the latest governmental interferencewith Polish courts.After the 2015 election victory, for example, Law and Justice initiated the replacement ofa number of judges of the country's Constitutional Tribunal and then essentially paralyzed the tribunal by requiring two-third majorities for rulings and a mandatory participation ratio.

Threats to jail opponents

The more recent legislation would give parliament large sway over the appointment of judges, stoking fears among government critics who believethe changes would make the prosecution of political opponents more likely. Human rights advocates say such fears may be warranted, given that Law and Justice published photos of anti-government protesters and threatened to prosecute them earlier this year, despite warnings by NGOsthat the move would have a chilling effect on the opposition. There has been little resistance to such measures inside the civil service, which has largely been replaced by loyalists over the last two years.

With the next parliamentary elections expected to take place in 2019, Law and Justice is unlikely to run out of time in its effort to weaken its opponents and to politicize previously independentinstitutions.

Read more:

Thousands in Poland protest government judicial reform plans

Polands senators to vote on contentious court overhaul

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It only took two years for a 'robust' European democracy to fall apart - Washington Post

Self-admiration isn't the answer.

In her new book, Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America, Nancy MacLean writes that my Bloomberg View colleague Tyler Cowen, by questioning American political institutions, was creating a handbookfor how to conduct a fifth-column assault on democracy. As the Hoover Institutions Russ Roberts pointed out, Cowens quote was taken out of context. This is worth noting because Cowen has long been a staunch defender of democracy.

But its no secret that Cowen is willing to think critically about the potential weaknesses of the U.S. system. He does this not to attack democratic ideals, but to defend them. If we want to see democracy endure, we must think realistically and pragmatically about its weak points, so that we can focus resources on shoring them up.

Its very dangerous to indulge in triumphalism about ones own form of government. Yes, democracies appear to have a modest statistical advantage when it comes to economic growth. But thats just a statistical trend, not an ironclad proof of economic superiority. Plenty of autocratic countries have experienced rapid growth, from Germany in the 19th century to South Korea and Taiwan in the early 1980s. Whats more, theres a chance that the modest correlation between democracy and growth is driven by one massive outlier -- the U.S., whose alliance and patronage was undoubtedly a big economic advantage for many democratic countries during the 20th century.

Right now, democracy is being questioned more from both within and without. Its worth asking if this is because democratic systems have some unique economic challenges that were systematically ignored in previous decades.

Economists have long known that democracy doesnt always lead to the most economically efficient outcome. The Nobel prize-winning economist Kenneth Arrow famously proved that no democratic political system can give all its citizens what they want in in all situations. Of course, real political systems dont even come close to optimality, so this finding is a bit academic.

But economic theory also points to a more concrete problem -- the difficulty democracies have in providing public goods. One of governments essential roles is to provide things that benefit people other than those who directly pay for them. Examples include national defense, infrastructure and basic research. Education and health care also have some aspects of public goods, since a healthy and educated populace creates broad benefits for everyone. Because free markets generally wont provide enough of these things, government needs to pick up the slack.

When building infrastructure, authoritarian countries dont have to worry about hurting the few to help the many. China forcibly relocated 1.2 million people to build a dam in the 2000s. Fortunately, that wouldnt be possible in the U.S., but it does mean that American companies are often forced to compete against authoritarian rivals that have access to cheaply built world-class infrastructure.

Paying for public goods can also be difficult. People differ both in their ability to pay and in the amount of benefit they derive from the public goods. Typically, countries use different types of taxes to take these two things into account -- gas taxes to fund highways, and income taxes that fall more heavily on the rich. But economic theorists have figured out that under a fairly general set of conditions, no tax regime can possibly provide a good deal for all citizens. Either government ends up not providing enough public goods, or it runs a budget deficit.

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There is an alternative. Its possible to balance the budget and provide the optimal amount of public goods, but only if some rich people are forced to pay very high taxes. But the amount of top-level taxation required is so steep that many rich people would rather just quit the system entirely -- move to another country, or abolish the government. This fairly general mathematical result probably explains many rich peoples affinity for libertarian ideas.

It also may explain why most democracies carry large amounts of government debt:

Gross central government debt as a share of GDP in 2014

Source: World Bank

This is also a recent phenomenon. Until about 1980, the U.S. did a good job of balancing its budget. But after 1980, structural deficits began to appear:

U.S. federal debt as a share of GDP

Source: Federal Reserve Bank of St. Louis

Did this happen because globalization gave rich people the option to move their capital -- or even themselves -- overseas if their taxes got too high? Thats what the simplified economic theory would predict.

If so, this presents a problem for democracies. Authoritarian countries such as China or Russia can implement capital controls to prevent money from flowing out. But democracies -- or any liberal system that allows freedom of personal and financial movement -- may struggle to balance their budgets in a globalized world.

Its precisely because we want democracy to survive that we must not ignore its special challenges. Making it taboo to even discuss these issues would be a big mistake. The free world needs fewer over-optimistic cheerleaders, and more thinkers like Tyler Cowen, who love democracy but are willing to think about its flaws.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

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Be Clear-Eyed About Democracy's Weaknesses - Bloomberg