December 5, 2004
SHOULD HAVE THOUGHT OF THAT IN THE VOTING BOOTH:
Proposal Would Hit Blue State Taxpayers: Some conservatives want to kill the U.S. deduction for state and local taxes. Californians and New Yorkers would feel the strongest sting. (Warren Vieth, December 5, 2004, LA Times)
As President Bush lays the groundwork for a possible overhaul of the U.S. tax code, one option under consideration would deal its biggest financial blow to citizens of blue states such as California and New York.Some conservative activists are urging the Bush administration to scrap the federal deduction for state and local taxes as part of a broader plan to revamp the nation's tax system.
Although the proposal would hurt some taxpayers in nearly every state, it would hit hardest in states with higher-than-average income levels and bigger-than-average state and local tax burdens. High on the list are a number of blue states — those that were carried by Democrat Sen. John F. Kerry in last month's presidential election.
Taxpayers in California and New York, for example, which have top state income tax rates of 9.3% and 6.5% respectively, would be highly affected; residents of Florida and Texas, which have no state income taxes, much less so.
"There's no question this effort would punish blue states," said Rep. Robert T. Matsui (D-Sacramento), a member of the tax-writing House Ways and Means Committee. Over time, he said, it could force state and local governments to cut expenditures.
But benefit the people there as it would put pressure on their state governments to reduce taxes. Posted by Orrin Judd at December 5, 2004 8:51 AM
Especially in inexcusably high tax Red States...like NC.
The interesting thing is that with the AMT as is now, those who would see an increase (or the biggest increase) in Total Tax as % of Gross Income would be those in the ~30%+ range. Very progressive indeed. Wuold be interesting to see how uber liberals such as Boxer, Corzine, etc. react...
Posted by: Moe from NC at December 5, 2004 10:03 AMKentucky, which is one of the reddist of the Red States, has a maximum personal income tax rate of 6%.
Fortunately, the newly-elected Kentucky governor (the first Republican elected governor in 40 years!) has pledged state tax reform as top priority. Our Democrats [albeit socially Conservative Democrats] are being pulled kicking and screaming into the economic 21st century.
Posted by: John J. Coupal at December 5, 2004 10:59 AMWith state & local taxes being deductible, the result is that citizens in low tax states are (indirectly) subsidizing the high state taxes in NY & Mass.
While I can imagine the glee with which people from Red States would like to destroy Blue California (and New York and Massachusetts), and impoverish the citizens of those states, it might not work out as well for the rest of the country as you think. Destroying 20% of the GDP (which is what those three states represent) wouldn't be good for anyone. I know that I personally, due to very high cost of living here in California, would be declaring bankruptcy within 2 years of enacting such laws and there are millions of people here in California in the same boat as I am.
Keep in mind that there is currently a significant net transfer from Blue States to Red States (see http://taxprof.typepad.com/taxprof_blog/2004/09/red_states_feed.html) so I'm not sure that it makes sense for Red Staters to bite the hands that feed them.
Posted by: Bret at December 5, 2004 2:18 PMBret --
I think the objective here is not Blue state destruction, but disincentivizing high-taxing Blue AND Red States from arbitraging the deduction in their calculus. Having lived in both high-taxing Blue and Red states, I sympathize with tax-payers as you.
More to the point, these analysis that show Blue to Red state subsidies -- popularly used now to disparage Republicans -- miss at least two points.
The first is that to the extent there are "net tax trasfers", they result from the Dems' (Blue staters) obsession with steepening (making more "progressive") the tax curve. Blue states are formerly Red States that got welthier first. Now that they are Blue, they are dissipating it. This is not Bush's doing, is Boxer's, Corzine, Kennedy's, etc.
Second, (but more as a curiosity) I would live to see the same analysis done by precinct. Somehow, I don't buy it that the Bluest centers of New York, Philly, Newark, Detroit, Los Angeles, etc. are paying much in taxes.
Posted by: Moe from NC at December 5, 2004 2:55 PMMoe:
Are sure the objective is not Blue state destruction? From my perspective, it has always looked like democrats have ignored CA 'cause they knew we would vote for them anyway, and republicans have always wanted to screw us since they knew we wouldn't vote for them anyway.
If the deduction were phased out over a long enough period of time (say 10 to 20 years), then CA could probably survive it. To do it abruptly, given that CA is not all that far from bankruptcy anyway, would be disastrous.
Also, I'd be hugely surprised if urban centers don't pay significantly more taxes than less urban areas. It's much more expensive to live in urban areas. Employers pay more in order to attract people to live there with the same standard of living as less urban areas. Progressive tax rates mean urban dwellers pay more and a higher percentage of tax, even though they're no better off. That's certainly the case here in San Diego.
OJ:
Even the governator can't do that. Pensions and other entitlements make up a large part of the budget.
Can anybody tell me what happens when a state defaults on its debt? Do the creditors then "own" the state and its assets? Including the residents homes and bank accounts?
Posted by: Bret at December 5, 2004 3:43 PMBret:
Wanna bet?
Several states have defaulted in the past. Nothing happened.
Posted by: oj at December 5, 2004 4:14 PMThe statistics are hard to drill through, but it appears that much of the blue state contribution comes from two factors: military spending tends to favor red states, because (a) that's were the military is and (b) Republicans have been in control of the House for ten years; and NIMBY campaigns from the blue states that have put various federal installations in red states.
Posted by: David Cohen at December 5, 2004 7:24 PMIt can be offset by cutting rates at the top end.
Posted by: Joseph Hertzlinger at December 5, 2004 9:51 PM[ "There's no question this effort would punish blue states," said Rep. Robert T. Matsui (D-Sacramento) ]
Let's see, this change in IRS code should be seen as PUNISHMENT - - but the presence of these significantly greater state income tax rates DOES NOT get seen as PUNISHMENT. This is indeed consistent reasoning ..... for a governmentalist(aka 'the left') .... where the sinful act consists of, in any fashion, discouraging the flow of money from the masses to the government.
Back when federal law mandated seat belts in our autos -- we endured punishment of morticians.
The left will persist in the us-versus-them mentality of blue-versus-red. Those reds are soooo divisive!
Posted by: LarryH at December 6, 2004 7:22 AMJust eliminate the Federal Income Tax and states will be compelled to eliminate theirs.
Posted by: Bart at December 6, 2004 10:34 AM