Somebody explain this paragraph to me —
Before the ink was dry on our new tax bill, outraged blue states were screaming about the cap on the deductibility of state and local taxes. Their governments were also frantically seeking ways around it, and small wonder. For decades, high-tax states with a lot of wealthy residents enjoyed a hefty subsidy from the rest of America. Legislators were understandably panicked over what voters might do when handed the rest of the bill.
This is from Megan McArdle in Wapo, who is one of those wonders who keeps getting plum writing jobs in spite of having the brain of a turnip.
At no point in this column does McArdle explain how people in high-tax states are getting a subsidy from the rest of America. It’s long been known that it works the other way around; with some exceptions, higher-tax “blue” states are subsidizing the lower-tax “red” states.
Here’s where it’s coming from:
Last fall, when the Trump Administration was pushing for its Tax Bill of Doom, Mnuchin and the rest of the Swamp Creatures pushed the idea that people in high-tax states were getting a break on their income taxes because they could deduct high state and local taxes from their federal returns. However, even with that “advantage,” the data show us that the high-tax “blue” states are still subsidizing the low-tax “red” states, not the other way around. And that’s because people who make tons of money tend to be concentrated in “blue” cities, because they are better places to live, and that’s where their jobs are.
The lie about how “red” states were subsidizing “blue” states was one of the selling points of the tax bill. McArdle is too dim to realize it was a scam.
Indeed six states–California, New York, New Jersey, Illinois, Texas, and Pennsylvania–claim more than half of the value of all state and local tax deductions nationwide, according to IRS data. (Texas has no state income tax.)
As it happens, the high-tax states also tend to be the wealthiest states — and also blue states in presidential elections. Under this particular provision, one could perhaps make the case that they are being subsidized by low-tax states. But when you step back and look at the total revenue and spending picture, blue states could make the case that they are subsidizing other states, as various reports show they receive far less in federal spending than they pay in federal taxes.
A report released on Oct. 3 by the New York State Comptroller said that New York generated 9.4 percent of the federal government’s income-tax receipts, even though it represented 6.1 percent of the U.S. population. It received 5.9 percent of federal spending allocated to the states. According to the report, New York contributed $12,914 per capita in tax revenue to the federal budget — but received $10,844 in per capita federal spending. The problem has only gotten worse in the three years since the report was last produced, state officials said.
“In New York state, the idea that we are being subsidized by other states holds no water,” Deputy New York Comptroller Robert Ward said in an interview.
And, of course, since the very wealthy made out like bandits in the tax bill, one can’t weap for them too much. But those blue states have a lot of low- and middle-income taxpayers also, who are there because that’s where their jobs are, but they struggle with higher costs of living and really need that tax deduction to get by. And there’s a bigger issue here about income inequality, as well as the fact that those blue states and cities are the biggest drivers of the American economy — just imagine if the whole USA were Mississippi — and yet people who live there have less of a say than rural red state voters about who gets to be president.
Just don’t get me started.