Blue State Leaders Consider Tax Cuts Following Tax Reform

blue states cut taxes
PHILADELPHIA, PENNSYLVANIA--JULY 26, 2016--Members of the California delegation, including Representative Nancy Pelosi, Governor Jerry Brown, and Senator Barbara Boxer announce their votes for Hillary Clinton during the roll call on the second night of the Democratic National Convention on Monday, July 26, 2016--(Carolyn Cole/Los Angeles Times)

President Donald Trump’s tax reform package (the “American Tax Cuts and Jobs Act”) put Democrats on our nation’s coasts in an awkward position. Those who have been calling for the rich to pay their “fair share” suddenly discovered that they might have to pony up in the end. And all of a sudden high taxes don’t sound as great as they once did.

This is armchair psychology, but I have a hunch that nearly all those calling for higher taxes on “the rich” really mean “I want people who earn more than me to pay more.” Among the ways that the Trump tax plan is bad for the wealthy in blue states is that it caps deductions on state and local taxes, or SALT for short. California’s State Senate President complained that the “Republican tax increase bill disproportionately hurts California taxpayers by capping SALT deductions. Today, the average California taxpayer takes a $22,000 deduction.” Because the GOP measure caps that at $10,000, “Californians will be double-taxed.”

Funny, isn’t it? It’s apparently the federal government’s job to subsidize high-tax-and-spend states by giving their citizens federal write-offs so that their state tax burden is less painful. Every dollar someone in one of those states gets to write-off against their income comes at the expense of the taxpayers in fiscally responsible low-tax states.

And that change in the tax code is forcing some leaders in blue states to consider lowering their taxes in turn to ease the burden on their residents.

As Will Ricciardella reports,

Leaders of liberal states that have enacted high taxes of their own are so enraged that their constituents now have to pay them without shifting any of the burden to the feds, they are actually considering suing the federal government.
Their claims are ironic considering the Democrats’ main contention with the federal tax overhaul is that it will only benefit the rich.
“The state and local tax deduction disproportionately benefits high-income taxpayers, with more than 88 percent of the benefit flowing to those with incomes in excess of $100,000,” Jared Walczak of the Tax Foundation wrote.
Oddly enough, the SALT deductions have escaped the stigma of being a tax cut for the rich. The result of the tax is that middle- and low-income taxpayers subsidize more generous spending in wealthier blue states because they benefit far less from SALT deductions, according to the Tax Foundation.
The states’ ability to transfer the burden of high taxes to the federal government has only encouraged them to raise taxes higher than they normally would.

These high-tax blue states truly have no one to blame but themselves. No one forced them to tax their citizens at the highest rates in the nation.

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By Matt

Matt is the co-founder of Unbiased America and a freelance writer specializing in economics and politics. He’s been published... More about Matt

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