ICYMI, the new GOP tax law has a provision specifically designed to punish Democratic-leaning states with relatively high taxes that reflect that state’s commitment to providing better social services to low- and moderate-income people. California and New York are the two most prominent states targeted for this tax punishment. Both states are intrigued by CEPR’s hack, championed by senior economist Dean Baker, as a way to thumb their collective noses at the trifling GOP tax antics.
Baker published a simple hack in the New York Daily News that New York and other states could enact to do an end-run around the GOP’s petty misuse of the tax law; it’s the employer-side payroll tax. It has also sparked the imagination of the press and Blue state leaders still smarting from the GOP using their states as target practice. Click on any of these links for a full explanation of Baker’s hack.
The New York Times touted the idea in a news story and later in an editorial. In both instances, the Times describes Baker’s hack thus, “… state governments would replace their income taxes with payroll taxes paid by employers. Those kinds of taxes — like the one for unemployment insurance coverage — are deductible for businesses under the Republican tax law. That switch would mean that employers could pay their workers less, but take-home pay would stay the same because employees wouldn’t be on the hook for paying state income taxes.”
As Baker said in this The Real News Network interview, “This tax act was an incredibly cynical proposal by the Republicans and this is a cynical response by state governments…and it's totally appropriate to turn around and go, ‘Okay, well, guess what guys? You weren't too bright. We outsmarted you.’”
Vox playfully turned a click-bait headline into serious tax news with, “This one weird trick lets blue states avoid Trump’s tax hike.” They described the hack as, “…perhaps the most promising option, teased by a large group of tax law experts and vocally championed by prominent liberal economist Dean Baker.”
The American Prospect published “Rubbing SALT in the Wounds of Republicans,” using Baker’s idea in his own words and wordplay on state and local taxes (SALT). Baker writes, “…it is necessary to fight back. A state employer-side payroll that undermines their plan is a great way to say ‘Merry Christmas’ to Donald Trump and his supporters.”
But will all this attention lead to policy changes in Blue states? The Washington Examiner reports, “New York Gov. Andrew Cuomo said Wednesday that the state government would explore a "major" overhaul of its tax system to circumvent the cap on state and local tax deductions ….one possibility would be an idea put forward by progressive economist Dean Baker.” More recently, Reuters news wire reports Companies in New York state are “open to the idea” of moving the state income tax code to a payroll tax system, a senior state official told Reuters on Friday. CNN reports that New York State Gov. Andrew Cuomo, “is looking for ways to redesign the New York tax code to counter this ‘federal assault.’"