Republicans Reverse, May Allow State Income Tax Deduction

One day after the top Senate Republicans realized they probably should have read the tax bill they voted for in the deep of the night on Saturday morning, and announced they are seeking to repeal the Alternative Minimum Tax they passed just days earlier, realizing it could punish growing companies, they now also appear to be reversing on the controversial repeal of State and Local Tax Deductions, and as Bloomberg reports, Republican lawmakers "are discussing a compromise on state and local tax deductions that would allow taxpayers to deduct state income tax, House Ways and Means Chairman Kevin Brady said."

According to one proposal being discussed, taxpayers could deduct both their state income tax and state and local property taxes up to a combined limit of $10,000. This differs from the currently circulating bills which preserve the individual deduction for state and local property taxes - capped at $10,000 - but not for income taxes. The push to include income taxes could help those in high-tax states who don’t own property.

Mitch McConnell confirmed he’s open to tweaking final tax legislation to appease lawmakers who want to let constituents deduct state income taxes: "There’s some in the House who would like to see that applied not just to property, but to income tax, you know, where you can sort of pick which state and local tax you want to deduct,” the Kentucky Republican said on conservative radio host Hugh Hewitt’s show. “That sounds like a kind of reasonable idea.”

Summarizing the conference process, McConnell said "There are a lot of these things that are floating back and forth,” adding that he cannot predict “exactly how the final product turns out” once the House and Senate complete their conference negotiations.

Indicating that SALT repeal was conceived as an entirely political move meant to punish "rich", predominantly blue states, House Republican leaders - hearing significant pushback from their own constituents - signaled openness to "relieving the burden for residents of high-tax states."

Plans for the so-called SALT deduction have prompted more tension in the House than in the Senate, because there aren’t any Republican senators from states with the highest taxes. Twelve out of the 13 GOP House lawmakers who voted against the bill last month were from high-tax states. Still, including the property tax deduction in the Senate bill was a last-minute change to help get the support of Republican Senator Susan Collins of Maine.

 

Two House members from New Jersey -- Leonard Lance, a Republican, and Josh Gottheimer, a Democrat -- plan to submit a joint proposal to the conference committee that would maintain SALT in its entirety.

 

The lawmakers said repealing the break will lead to "double taxation" and "pay for reform on the backs of just a few states that already pay significantly more than other states in federal taxes." One of those net donor states, they note, is New Jersey.

Brady, who’s overseeing the House-Senate conference committee for tax negotiations, said Wednesday that allowing income tax deductions is one of five options on the table. Others include potential adjustments to rates, brackets, the individual alternative minimum tax and the family tax credit.

There is just one problem with the bill which is already cutting it dangerously close to the $1.5Tn extra deficit limit: where does the money come from?

As Bloomberg writes, it"s unclear how lawmakers would pay for any such modifications to the state and local tax break. Preserving the property tax deduction up to $10,000 would cost about $148 billion over a decade, according to the Joint Committee on Taxation. McConnell has been said to want any proposed changes presented with ways to pay for them.

Among the proposed revenue offset include changing estate tax rules about stepped-up basis and closing what they call a loophole for charitable donations to private foundations as ways to offset some of the lost revenue that would result from keeping SALT.

Senate Bill Nearly Killed By Deficit Hawks: Will Include $350 Billion In New Tax Hikes

Following a report from the Joint Committee on Taxation, which unveiled late on Thursday afternoon that the Senate Tax bill would generate enough economic growth to lower its $1.4 trillion revenue cost by only about $458 billion over a decade - in other words it would still boost the deficit by roughly $1 trillion - in a dramatic showdown on the Senate floor, GOP leaders agreed to effectively increase taxes by $350 billion in response to a procedural ambush by deficit hawks led by Sen. Bob Corker that nearly killed the GOP tax reform bill.

According to Bloomberg, Senator David Perdue, a Georgia Republican, said that GOP Senators are "discussing a new compromise for their planned tax overhaul that would increase taxes in future years."

David Perdue

Quoted by The Hill, Senate Republican Whip John Cornyn told reporters after a round of intense discussions on the floor, “we have an alternative, frankly, tax increase we don’t want to do to try to address Sen. Corker’s concerns.”  Cornyn said the details of the proposal are being worked out.

Corker had insisted on a "trigger" proposal that would have rolled back tax relief in case economic projections fell short of expectations; the flipside is that it would have also made any recession in the near future far worse by staggering tax increases just as the economy slowed down, in the process sending the deficit soaring and accelerating the economic contraction.

And in an unexpected, 11th hour reversal, the Senate parliamentarian ruled Tuesday afternoon that the trigger would not pass procedural muster. “It doesn’t look like the trigger’s going to work according to the parliamentarian,” Cornyn said. Cornyn’s remarks came after an hourlong standoff on the Senate floor in which three Republicans - Corker, Ron Johnson and Jeff Flake - held up a procedural vote that would have sent the measure back to the Senate Finance Committee.

At least two of those members, senators Bob Corker of Tennessee and Jeff Flake of Arizona, had backed the trigger concept in recent days. Corker The deficit hawks threatened to vote for a motion to recommit the tax bill back to the Finance Committee. That move would have put the legislation in limbo for the foreseeable future and scuttled an all-night voting session on tax relief.

As The Hill adds, Republican leaders appeared extremely frustrated with Corker, Flake and Johnson during their intense discussions on Thursday night while the fate of the bill teetered in the balance.

McConnell’s face grew flushed as he huddled with Corker and Sen. Pat Toomey (R-Pa.), one of the main architects of the tax reform bill, while GOP colleagues crowded around them to listen in. Johnson said he joined Corker’s rebellion so he could win an assurance from GOP leaders about getting a vote on setting the corporate tax rate above the 20-percent level favored by President Trump.

Ultimately the hawks allowed the floor debate to continue, but it’s unclear whether or how their demands might be met. Meanwhile, Senator David Perdue said the estimated tax increase would be $350 billion over a decade. Cornyn told reporters that the size could be even larger. Senator Ron Johnson of Wisconsin said he held out as well, to ensure he can offer amendments, including one to raise the pass-through deduction to about 25%, paid for by eliminating the corporate deduction for state and local taxes.

Quoted by Bloomberg, Johnson said he doesn’t know if senators will finish the bill Thursday night. “We just saw a kink in the time plan right there so who knows what other cogs might be put in this wheel,” he said.

Republican Senator Lindsey Graham added: “I think you’re going to see a lot of these scrums, and here’s the way they’ll end: We’ll pass the bill sometime tomorrow.”

For the sake of the parabolic market, he better be right. 

Goldman On Tax Reform: "Now Comes The Hard Part"

The ink wasn"t even dry yet on the just published Republican Tax Cut And Jobs Act, and within the hour UBS was already confident that it has virtually no chance of passing: As UBS chief economist Seth Carpenter wrote shortly after the publication, "to our read, the release confirms our view that tax reform is far from being a done deal. The bill contains several specifics that we believe will prove sticking points, which increase the difficulty of finding the votes to support the plan in both the House and the Senate." Fast forwarding to Carpenter"s conclusion: "We maintain our view that tax reform is unlikely this year or next."

To be sure, banks have a right to be skeptical: after all with the economy already growing above 3%, the last thing financial institutions want is for another burst of output courtesy of fiscal stimulus. Last week, Lloyd Blankfein said as much when the Goldman CEO warned "now’s not the best time for tax cuts", a view diametrically opposite that of his former "right hand man", Gary Cohn, currently Trump"s chief economic advisor, who said this is precisely the right time for more tax cuts.

“I can’t say this is the moment where you want the most fiscal stimulus in the market, when we’re mostly at full employment, when GDP last registered at 3 percent,” Blankfein said Thursday in a Bloomberg Television interview. “I don’t know that this is the moment that you provide the biggest stimulus.”

Goldman CEO"s skepticism was obvious in a report released this afternoon by economic Alec Phillips, who looked at the tax plan released on Friday, and said that while Goldman still assigns a two-thirds chance of tax reform passing, it conceded that "now comes the hard part."

First, here are the big picture details:

Tax Reform: Now Comes the Hard Part

• The recent release of the House tax reform bill marks the start of the second, harder, stage of tax reform. The plan cuts the corporate tax rate to 20% and reduces taxes on individual and “personal business” income while  staying within the $1.5 trillion (over 10 years) cost limit recently agreed to in the House and Senate. Achieving all three goals had appeared quite difficult in our view but the proposal does it, according to the official estimates.


• The House proposal includes substantial reforms. However, this greater-than-expected base broadening has already generated some political opposition, which is likely to lead to changes to the House bill as it moves forward.  The Senate is likely to release its own version with even greater differences within the next week or so, in our view.


• The proposed tax cut is more front-loaded than we have expected; official estimates suggest a tax cut of 0.75% of GDP in 2018. However, we expect the final version to have a smaller near-term effect as competing priorities lead tax-writers to phase in some cuts—particularly corporate rate cuts—over time. Senate Republican centrists have already expressed concerns about the cost and might balk at tax cuts that expire after five years, since the true ten- year fiscal cost would rise if they were extended.


• The net tax cut appears to be weighted more heavily toward individual and “pass-through” income than to the corporate sector. This is surprising considering the proposed immediate and permanent 20% corporate tax rate, but appears to be the result of substantial base-broadening, new restrictions on cross-border corporate activity, and the fact that several existing tax incentives are set to expire, which offsets a portion of the net tax cut under the legislation.


• We continue to believe that tax legislation has around a two-thirds chance of becoming law by early 2018. The release of the House legislation is a positive step in that it moves the process forward. It also demonstrates that  meaningful base-broadening might be more achievable than we have believed. However, it does not alter our outlook for the odds of enactment, since the Senate is likely to release its own bill shortly and the vote in that chamber represents the greater obstacle to passing tax reform.

Hatzius lays out the key underlying details for his current outlook:

There are good reasons to believe that tax legislation will become law in the next few months and we believe there is a 65% chance of enactment by Q1 2018. First, tax reform—and a net tax cut—is an area where the President and most congressional Republicans generally agree. This is notable, since there are substantial differences within the Republican Party on a number of other issues, including immigration, infrastructure, international trade and health reform.

 

Second, congressional Republicans face a difficult midterm election in 2018 and many lawmakers believe Republican prospects would be improved by a major legislative achievement before voters head to the polls. As Exhibit 1 shows, Republicans tend to be more supportive of most of the general aspects of tax reform than Democratic voters, though some tax changes are more popular than others; middle-class tax cuts and small-business relief enjoys broad support, while corporate tax cuts do not.

 

Third, tax legislation can pass in the Senate with only 51 votes, instead of the customary 60 votes, through the budget reconciliation process. Now that a majority of the House and Senate have passed a budget resolution calling for a tax cut of up to $1.5 trillion over ten years, the odds would seem low that they would fail to follow through in passing the tax legislation itself.

 

Nevertheless, there are still a number of ways that the effort could run off the rails. First, tax reform is much harder than tax cuts. The recently introduced House proposal is a case in point. While the proposal achieves meaningful reductions in individual and corporate tax rates, it also targets a number of specific tax benefits and several important constituencies have come out against the bill. This is the main risk to passing tax reform with only Republican votes, in light of the slim Republican majorities in both chambers.

 

Second, although House and Senate majorities voted in favor of a budget resolution including an instruction to cut taxes by up to $1.5 trillion over ten years, a few of these lawmakers have expressed some hesitation regarding the tax legislation itself. Senator McCain (R-AZ), for example, has called for the legislation to be considered under “regular order” and might not support a tax bill passed via the reconciliation process. Senator Corker (R-TN) supported the budget resolution but has left open the possibility that he would oppose the tax bill itself if he feels it would add to the deficit beyond the estimated revenue gain from economic growth effects and the cost of extending expiring provisions.

 

Third, while few argue against the concept of revenue neutral reform that lowers statutory tax rates and broadens the tax base, there are good arguments against a large net tax cut at the moment, including a high debt-to-GDP ratio, growing fiscal imbalances projected over the coming decade, and an economy with little remaining slack. This stands in contrast to the 1981 and 2001 tax cuts, when the federal budget was projected to run surpluses, the debt-to-GDP ratio stood at less than half of its current level, and the economy was in recession.

 

That said, the tax cut is not that large; nearly $500 billion in expiring tax provisions were likely to be extended regardless of tax reform, so the net revenue loss over ten years compared to our and most other realistic projections is only around $1 trillion (0.4% of GDP). The increase in GDP that would result from a tax cut would reduce the net cost slightly further.

Next, Phillips breaks down the key components of the Tax Cut And Jobs Act, whose core principles are summarized as follows:

On November 2, the House Ways and Means Committee released its Tax Cuts and Jobs Act (TCJA). The proposal makes more substantial changes than are implied by its estimated cost. The House plan achieves a 20% corporate tax rate and tax relief for individuals and “personal business income” while staying within the $1.5 trillion (over 10 years) limitation on cost recently agreed to in the House and Senate. Achieving all three goals had appeared quite difficult but the proposal managed to do this, according to estimates from the Joint Committee on Taxation (JCT); the most recent estimate puts the total revenue loss at just over $1.4 trillion over ten years.

Here, instead of repeating Goldman"s take on all the core aspects of the TCJA, we summarize the progression of tax reform courtesy of the following summary chart:

Which the brings us to Goldman"s critical discussion on "the way forward", or what happens next. Exhibit 8 below summarizes Goldman"s expectations regarding the timeline for consideration of tax reform over the next few months.

The House Ways and Means Committee is scheduled to begin its “mark up” of the TCJA on Monday, November 6. This is likely to take several days, and will involve the consideration of dozens (potentially over 100) amendments to the proposal, followed by a vote on the package as amended. House Republican leaders hope to pass the bill on the House floor the week of November 13, but might have to postpone the vote until after the Thanksgiving recess (the week of November 20) if there is insufficient support and further changes become necessary. In our view, there is little risk that the committee will fail to pass the bill, but a good chance that objections from some Republicans could delay passage by the full House until after Thanksgiving. That said, we believe there is a high probability of House passage by December.

How about the Senate?

The Senate Finance Committee might release its own proposal late in the week of November 6, though it is also quite possible this could be delayed. Although Senate Republican leaders have expressed hope that the Senate might be able to pass tax reform legislation by the end of November, this seems unlikely to us. Passage in December is certainly possible, however, in our view. We assume that a conference committee between the House and Senate will be necessary to resolve differences between the two bodies, which would probably delay final enactment until early 2018. That said, it is conceivable that the House could instead simply pass the Senate’s version of tax reform, which might allow for enactment before year-end. We continue to see enactment in early 2018 as the base case, though we note that market perceptions could shift substantially before then. For example, a successful Senate vote in December could lead market participants to place a high probability on eventual enactment, since the Senate vote is widely seen as the greatest risk to passage.

In summary, Goldman continues to believe there is a 65% chance that Congress will approve a tax bill by Q1 that results in a net tax cut of about $1 trillion (0.4% of GDP) over ten years (an amount similar to the tax cut under the TCJA, adjusting for scheduled expiration of tax incentives under current law) by Q1 2018. By comparison, prices in the online prediction market PredictIt imply a 60% probability that a corporate tax cut will be enacted by the end of Q1 2018, and around a 30% chance it would be enacted prior to year-end, down from over 80% early in the year.

What about the market?

The relative performance of our equity strategists’ basket of high tax stocks vs. the S&P 500 suggests that expectations have come down further. Even after adjusting for dollar depreciation—low tax stocks tend to have more foreign exposure so the relative performance might also be driven by the value of the dollar— the basket suggests that market expectations for tax reform that benefits high tax companies more than low-tax companies are not much greater now than they were prior to the election.

What may be taking place, according to Phillips, is that In light of the House proposal’s 20% rate combined with substantial base broadening and base-erosion protections, the market might soon assign a higher probability that the high tax rates faced by some companies— particularly those with a largely domestic focus— might converge with the low effective tax rates that some US-based multinationals pay. As a reminder, while the statutory US tax rate is 39%, the effective US tax rate of 27% has never been lower. In this light, the Trump tax cuts, contrary to Steven Mnuchin"s observations, will soon be seen as a non-event, especially if Goldman is correct, and the agreed upon corporate tax rate end up being 25%...

Futures Slide On Report Corporate Tax Cuts To Be Temporary, Phase Out After A Decade

When the NAR won the battle over keeping State and Local Tax deductions "as is", in the process denying the proposed GOP tax reform more than a trillion in revenue over the next ten years, it effectively doomed the most important provision of the republican tax bill set to be unveiled tomorrow: the reduction in the corporate tax rate from 35% to 20%. Or rather the permanent reduction in the corporate tax rate. Because according to House Ways and Means Chairman, Kevin Brady, what will be revealed on Thursday is a tax proposal with a temporary corporate cut, one which reverts back to the original 35% tax rate after a decade.

Brady says tax bill will only have TEMPORARY cut in the corp rate from 35% to 20%. Couldn"t not make permanent cut comply with Senate rules

— Damian Paletta (@damianpaletta) November 1, 2017

As Bloomberg confirms there have been conflicting reports about when the rate cut would take effect, or how long it would last, and according to a Republican lawmaker, House tax writers will phase out the proposed corporate rate of 20% after a decade. While cutting the corporate tax rate to 20% from 35% is a key provision of the Republican tax legislation that set to be unveiled tomorrow, no matter how hard they tried, GOP legislators could not get over a key hurdle: lack of revenue.

According to Bloomberg, "Congressional tax writers are struggling to find enough revenue to help the tax package adhere to the 2018 budget Congress adopted last month. That budget would allow the legislation to add no more than $1.5 trillion to the federal deficit -- before accounting for any economic growth that might result."

The problem is that the corporate tax cut is estimated to cost just over that, or $1.6 trillion over the next decade according to the Tax Foundation. One solution to the dilemma, is the notion of phasing in the corporate rate cut.  Furthermore, the congressional Joint Committee on Taxation said in an April letter to House Speaker Paul Ryan that a corporate tax rate of 20 percent would create deficits in the long run even if it remained in effect for just three years, adding further complication to the current revenue-less predicament.

Another problem: making the rate-cut temporary would limit its ability to spur economic growth, a key selling point cited by President Donald Trump and others. It is also a key factor in explaining the recent market surge, especially since Trump"s "Biggest tax cut ever" would have a 10 year shelf life, at which point things would revert back to the way they were.

And while stocks have been slow to grasp the significance of this major disruption to the GOP tax bill, the USDJPY is - gradually - waking up, or rather down, and so are futures...

Trump To Order Corporate Tax Rate Cut To 15%, Loading Up To $2 Trillion In Extra Debt

Ahead of Trump"s much anticipated tax announcement on Wednesday, the WSJ reports that the president has ordered his (mostly ex-Goldman) White House aides to accelerate efforts to create a tax plan "slashing the corporate rate to 15% and prioritizing cuts in tax rates over an attempt to not increase the deficit" which means that without an offsetting source of revenue, Trump is about to unleash the debt spigots, a proposal which will face fierce pushback from conservatives as it is nothing more than a continuation of the status quo under the Obama administration, and may well be DOA.

The WSJ adds that during an Oval Office meeting last week, "Trump told staff he wants a massive tax cut to sell to the American people" and that it was "less important to him if the plan loses revenue."

Hoping to add a sense of dramatic urgency - after all his 100 day deadline hits on Saturday - Trump told his team to “get it done,” in time to release a plan by Wednesday.

Translation: Trump"s massive tax cut will be funded by debt, and as a result, will be at best temporary as it will be in breach of the revenue constraints in the reconciliation process; at worst it will never happen as it will now require Democrat votes.

Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn are scheduled to meet Tuesday to discuss Mr. Trump’s tax proposals with Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, Senate Finance Chairman Orrin Hatch and House Ways and Means Chairman Kevin Brady of Texas. The meeting comes in advance of a Wednesday announcement by Mr. Trump about his principles for tax policy.

While Trump promised to cut corporate rates to 15% from 35%, with the BAT now out of the picture, there aren’t enough business tax breaks that could be repealed to offset the fiscal cost, meaning such a move would increase budget deficits, the WSJ notes. Roughly, each percentage-point cut in the tax rate lowers federal revenue by $100 billion over a decade, so a 20-point cut would cost the government $2 trillion, according to the congressional Joint Committee on Taxation.

And, as we noted above, the fact that Trump has flip-flopped on revenue offsets may have also doomed Trump"s tax plan: as the WSJ points out:

"any plan that adds to budget deficits would be difficult to advance on Capitol Hill, for both procedural and partisan reasons. The president’s fellow Republicans, who control both the House and Senate, are aiming to pass a tax bill through a process known as reconciliation, which means they wouldn’t need votes from Democrats. However, bills passed under reconciliation can’t increase deficits beyond the typical 10-year time frame against which tax and spending policies are projected."

Meanwhile, The House Republican tax proposal calls for a 20% corporate tax rate, with the cost covered by including a border-adjustment feature that taxes imports and exempts exports. Trump’s White House has sent mixed messages about whether it would support the border-adjustment plan.

Asked Monday if the president’s tax plan would be revenue-neutral, meaning it wouldn’t add to the debt, Mr. Mnuchin told reporters that it would “pay for itself with economic growth.” By that he meant that the administration expects to be able to project faster growth due to tax cuts, which would in turn increase revenue and avert the risk of bigger budget deficits. Many economists doubt whether economic growth can ramp up on a sustained basis without a big pickup in productivity and labor-force growth, and it is uncertain the tax-policy changes would do that.

“They will lose a boatload of revenue that we can’t afford to lose and far more than this team will offset by closing loopholes,” said Jared Bernstein, who was an economic adviser to former Vice President Joe Biden. Cutting marginal tax rates for businesses could generate some economic growth, he said, but not nearly enough to pay for itself with increased revenue.

“These promises about all kinds of growth and investment that are going to be triggered by these tax cuts never appear, and the empirical historical record is clear on that,” Mr. Bernstein said.

In other words, that makes it "difficult if not impossible for Republicans to pass a deficit-financed tax cut that doesn’t expire without getting Democratic votes in the Senate. Democrats are against large tax cuts for corporations, especially at a time when Mr. Trump is proposing cuts to government spending programs they prioritize, like housing, arts and the environment."

It also means that as Compass Point"s Isaac Boltansky wrote earlier today, Trump"s release of tax details on Wednesday will likely deliver only "a vague generalization" of his goals in coming tax reform effort; and, if the WSJ is correct in laying out Trump"s uber-ambitious plan, the generalizations will also be impossible to be implemented, effectively killing most if not all hope of tax reform for the foreseeable future as the bickering between Democrats and Republicans will be effectively insurmountable.

Drudge: "Republicans Lied About Tax Cuts", Wants His Vote Back

In what may be his most vocal complaint aimed at the Republican party since the Trump presidential victory, prominent conservative voice Matt Drudge on Tuesday accused the GOP of "lying" about wanting tax cuts, and asked to "get his vote back."

BTW, Republicans lied about wanting tax cuts. Can we get our votes back?

— MATT DRUDGE (@DRUDGE) March 14, 2017

Delays surrounding the repeal of Obamacare, which as Goldman earlier said will likely be postponed by several months if not longer following the controversial CBO report, will asure significant delays with the implementation of Trump tax cuts. Furthermore, the Republican healthcare plan would repeal most of ObamaCare"s taxes: a prospect that looks increasingly distant. Earlier this month, the Joint Committee on Taxation released estimates showing the repeal and delay of many of ObamaCare"s taxes in the GOP healthcare plan would result in more than $500 billion in lost federal revenue.

The Trump team"s reform plan "will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone," the president said during an address to a joint session of Congress. He also said the plan "will provide massive tax relief for the middle class."

In a separate tweet, Drudge also questioned the National Weather Service in light of Tuesday"s snowstorm.

"Lots of misses piling up. Overreaction by govts, bad forecasting very troubling trend!" he tweeted adding that "Trump should clear out climate hysterics from NWS. All storms grossly exaggerated. National Guard called for 3 inches? JFK closed? Laughable."

What is going on with National Weather Service? Lots of misses piling up. Overreaction by govts, bad forecasting very troubling trend!!

— MATT DRUDGE (@DRUDGE) March 14, 2017

Trump should clear out climate hysterics from NWS. All storms grossly exaggerated. National Guard called for 3 inches? JFK closed? Laughable

— MATT DRUDGE (@DRUDGE) March 14, 2017

The 'Soda Police' Just Learned A Valuable Lesson About Taxes

Submitted by Daniel Mitchell via The Foundation for Economic Education,

I don’t like tax increases, but I like having additional evidence that higher tax rates change behavior. So when my leftist friends “win” by imposing tax hikes, I try to make lemonade out of lemons by pointing out “supply-side” effects.

I’m hoping that if leftists see how tax hikes are “successful” in discouraging things that they think are bad (such as consumers buying sugary soda or foreigners buying property), then maybe they’ll realize it’s not such a good idea to tax – and therefore discourage – things that everyone presumably agrees are desirable (such as work, saving, investment, and entrepreneurship).

Though I sometimes worry that they actually do understand that taxes impact pro-growth behavior and simply don’t care.

But one thing that clearly is true is that they get very worried if tax increases threaten their political viability.

This is why Becket Adams, in a column for the Washington Examiner, is rather amused that Mayor Kenney of Philadelphia has been caught with his hand in the tax cookie jar.

Philadelphia Mayor Jim Kenney fought hard to pass a new tax on soda and other sugary drinks. He won, and the 1.5-cents-per-ounce tax is now in place, affecting both merchants and consumers, because that’s how taxes work. Businesses pay the levies, and they offset the cost by charging higher prices. That is as basic as it gets. The only person who doesn’t seem to understand this is Kenney, who is now accusing business owners of extortion. “They’re gouging their own customers,” the mayor said.

Yes, consumers are being extorted and gouged, but the Mayor isn’t actually upset about that.

He’s irked because people are learning that it’s his fault.

Philadelphians are obviously outraged by the skyrocketing cost of things as simple as a soda, which has prompted some businesses to post signs explaining why the drinks are now so damned expensive. Kenney said that this effort by businesses to explain the rising cost is “wrong” and “misleading.” The mayor apparently thought the city council could impose a major new tax on businesses, and that customers somehow wouldn’t be affected.

In other words, it’s probably safe to say that Mayor Kenney has no regrets about the soda tax. He’s just not pleased that he can’t blame merchants for the price increase.

Even the IMF is Skeptical of High Taxes

The International Monetary Fund, by contrast, may actually have learned a real lesson that higher taxes aren’t always a good idea. That bureaucracy is infamous for blindly supporting tax increases, but if we can believe this story from the Wall Street Journal, even those bureaucrats don’t think additional tax hikes in Greece would be a good idea.

IMF officials have said Greece’s economy is already overtaxed. New taxes that came into affect on Jan. 1 are squeezing household incomes further. Economists say even-higher income taxes—in the form of lower tax-free income allowances—could add to a mountain of unpaid taxes. Greeks currently owe the state €94 billion ($99 billion), equivalent to 54% of gross domestic product, and rising, in taxes that they can’t pay.

Here are some stories to illustrate the onerous tax system in Greece, starting with a retired couple that will probably lose their house because of a new property tax.

…the 87-year-old former economist and his 81-year-old wife are unable to repay the property tax imposed on their 70-year old house, a family inheritance. The annual tax is around ‎€33,000, but Mr. Kokkalis’s pension—already cut by half—is €28,000 a year. The couple borrowed money when the tax was imposed, initially as a temporary austerity measure in 2011. But they are already behind on nearly €200,000 of tax payments and can’t borrow more. Mr. Kokkalis says the state is calculating tax based on outdated property prices that have since collapsed, and that if he tried to sell the house now, nobody would be interested. “They impose taxes on an imaginary value,” Mr. Kokkalis says. “This is confiscation.”

I’ve already written about this punitive property tax. The good news is that property taxes generally are transparent, so people know how much they’re paying.

The bad news is that the tax in Greece is far too onerous.

And I’ve also noted that small businesses are being wiped out in Greece as well. The WSJ has a new example.

Tax increases under previous rounds of austerity have put a middle-class lifestyle beyond reach for many. “Our only goal now is survival,” says arts teacher Mimi Bonanou. Until recent years she also made a living as a practicing artist, selling her works in Greece and abroad. But increasingly heavy taxes that self-employed Greeks must pay at the start of each year, based on the state’s often-ambitious forecast of their incomes, have forced her to rely on teaching alone.

All things considered, Greece is a painful example that a country can’t tax its way to prosperity (though some politicians never learned that lesson).

Moreover, it’s nice to have further evidence that even the IMF recognizes that Greece is on the wrong side of the Laffer Curve.

And if a left-leaning bureaucracy is now willing to admit that excessive taxation can lead to less revenue, maybe eventually the Republicans on Capitol Hill will install people at the Joint Committee on Taxation who also understand this elementary insight.