As I’m on the road, I’ve only read summaries. Kevin Drum has an excellent post on how the distributional implications harm the blue states, follow-up here. Scott Sumner says better than expected. Kevin writes:
The Republican tax bill eliminates deductions for a bunch of odd things: tuition debt, mortgage interest, alimony, medical expenses, state and local taxes, gambling losses, tax prep expenses, moving expenses, and a few others.
Bravo! I’m actually impressed, noting that many of these deductions are limited rather than eliminated as I understand matters. Furthermore, in various embedded ways the plan discourages the itemizing of deductions, which in turn limits the value of remaining deductions for many taxpayers, but in a politically subtle way. The bill even nips at the endowment income for well-off universities, though I don’t favor that change, as it may harm innovation.
The plan as a whole is a reckless expansion of the deficit, but if that is going to happen anyway this is one of the better ways to do it. In fact, we should tax companies less and homes/land more. Why? First, for behavioral reasons homeowners are insufficiently diversified; the tax code should not encourage that. Second, this bill will (modestly) lower land, home, and rental values in the fancy cities on the coasts, a net gain at least for non-itemizers perhaps (caveat: I don’t know everything that is in the bill). Third, big, fancy homes on big plots of land are not that “green,” and furthermore residence size seems to bring a lot of hedonic adaptation. Fourth, there are more likely increasing returns across companies than across expensive homes. Fifth, American equities seem to bring a long-run return of 5-7% and real estate zero percent. More of the former please! Companies > homes.
I believe that with further examination I could find many ugly and stupid aspects of this bill, and many politically craven decisions. And again, I don’t favor increasing the debt. But holding the size of the debt constant, let’s face it — this is a step in the right direction.