New York Governor Andrew Cuomo says the Republicans have declared economic war on blue states:
The new tax law’s limit on of the state and local deduction may pose a fiscal threat to high-tax states and their affluent taxpayers. But it’s also a political gift to Democratic officials in those states seeking to raise their national profiles by challenging President Donald Trump and circumventing the law.
For Democratic leaders in New York, California and New Jersey, finding state-level workarounds to the new tax code could deliver on a pocketbook issue for a key constituency: voters in high-cost suburbs from Orange County, Calif. to Westchester who are set to lose out most from the SALT cap.
The Wall Street Journal’s William McGurn has some fun with this. Excerpts:
The effective tax hike on New York residents, the governor complains, “could cause people to leave the state.”
… Mr. Cuomo and other blue-state governors are right about the pain. The SALT deduction operated as an effective federal subsidy for blue-state taxpayers because it returned to them some of the high taxes they paid to their state governments. With the deduction now capped at $10,000, citizens in states such as New York, New Jersey, California and Connecticut will be feeling more keenly the pinch of their states’ tax and spending policies.
“SALT is one of many maneuvers that have let states spend without facing reality,” says Eileen Norcross, director for the State and Local Policy Project at George Mason University’s Mercatus Center …
Ironically, in the course of denouncing the attack from Republicans in Congress and the White House, Mr. Cuomo ceded their core argument: Tax rates affect behavior. For in his declaration of war, Mr. Cuomo admitted his worry that hiking the marginal tax rate on New Yorkers gives them an incentive to relocate. Until now it was supposed to be a Republican canard that highly taxed blue staters defect to lower-taxed red states.
Just as illuminating, this is a battle being waged for the wealthy. In his speech Mr. Cuomo hailed the Empire State as a progressive “beacon” unto the nation. But in a Monday post, Thurston Powers, a legislative analyst for the American Legislative Exchange Council’s Center for State Fiscal Reform, noted that 88% of the savings from the SALT deduction were enjoyed by people with incomes of $100,000 or more.
Note to New York City mayor and self-styled Progressive in Chief Bill de Blasio : The elimination of this deduction diminishes an effective subsidy for wealthier taxpayers. So where are the shouts of support for making the rich pay their “fair share”?
An interesting claim from some of the elided McGurn material: that the high-tax blue states politically cannot cut budgets (and taxes) because so large a portion of the fat comes from Democrat subservience to public employee unions. That seems plausible, but requires me to refine my claim (I’m confident I’ve claimed it in this blog, but I’m not going to look it up) that the Democrats around 1972 abandoned the working class that had been, through labor unions, a key constituency. The refinement would be to carve out public employee unions, which have not been abandoned.
Finally, if you want to see cynicism at work, consider one of the transparently bogus options blue-state Democrats are considering:
Like his counterparts in California and New Jersey, he’s considering mechanisms for taxpayers to fund state and local government with charitable contributions that are then credited against their tax liability ….
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“No man hath a velvet cross.” (Samuel Rutherford, 17th century Scotland)