The tax plan that House Republicans released last week cuts taxes on net basis for all income earners, but does include some tax increases (through capping deductions) that are proving to be a major hangup for Republicans in states like New York, New Jersey, and other high-tax coastal states. In particular, the proposed elimination of the state and local tax (SALT) deduction, which allows people to deduct those taxes from their federal bill. The bill thus far would cap property tax write-offs at $10,000, and provide no write-off for state income taxes.
The federal government allowing for state and local tax write-offs in the first place has the unintended consequence of having the federal government subsidize states that adopt the tax-and-spend philosophy. There have even been charges that Trump’s tax plan aims to cut taxes at the expense of those in blue states, since it is primarily those in high-tax blue states hurt most by the changes in deduction limits.
Since the property tax write-off will be capped at $10,000, it’s primarily those with a large amount of wealth in the form of property who are incentivized to jump ship (to another state). What those in the leadership of such states need to realize however is that this is just another nail in their coffin, further giving states already seeing population decline another moment of truth.
A book on the subject of state policy influencing migration titled “How Money Walks” uses official statistics from the Census and the IRS to explore the subject. It found that between 1995 and 2010:
• The nine states with no personal income taxes gained $146.2 billion in working wealth
• The nine states with the highest personal income tax rates lost $107.4 billion
• The 10 states with the lowest per capita state-local tax burdens gained $69.9 billion
• The 10 states with the highest per capita state-local tax burdens lost $139 billion
According to the authors, “The states that gained working wealth are growing and thriving. The states that lost working wealth lost their most precious cargo—their tax base—and the consequences are dire: stagnation, deterioration, an economic death spiral as they continue to raise taxes and lose people, businesses, and working wealth. The numbers don’t lie.”
Here’s that visualized, courtesy of Unbiased America:
As we’ve documented in the past, whether it’s in the House of Representatives, the Senate, or the White House, Republicans and Democrats alike don’t appear to have much trouble spending like drunken sailors. However, that isn’t the case on the state level, as one new study reveals.
A study by the non-profit group Truth in Accounting looked at the public financing and debt burdens of all fifty states, which have a total of $1.5 trillion in long-term debt. Most of the debt is attributable to unfunded employee pensions and retiree health benefits. The overall conclusion of the study was that red states manage their finances a heck of a lot better than blue states. In this case, I’ll be using the terms “red states” and “blue states” to mean “states where Republicans/Democrats have control of the governorship and both legislative houses.”
- In blue states, there is an average of $22,214 in unfunded debt. In red states, that taxpayer burden is only $1,473.
- In states where power is split, the average is $14,963
- The five best states, along with their “surplus” per taxpayer are: Alaska, +$38,200, North Dakota, +$24,000, Wyoming, +$20,500, Utah, +$4,600, Nebraska, +$2,600.
- The five worst states, along with their debt per taxpayer are: New Jersey, -$67,200, Illinois, -$50,400, Connecticut, -$49,500 Kentucky, -$39,000 Massachusetts, -$32,900.
And for that reason, it’s hardly a surprise that every single day, on net basis, 1000 people move from blue states to red states already.
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