Thursday’s release of the House GOP tax plan will be greeted with a flurry of “hot takes” about its “winners and losers.” So, for everyone’s sake, let’s keep this simple. Unsurprisingly, the biggest winners from what the President called a “big, beautiful Christmas present” are people named Trump and those like them. Just as predictable, the real losers are the tens of millions of Americans who live in blue states generally governed by Democrats.
As I’ve documented previously, Donald Trump’s 2015 boast that his tax plan would “cost me a fortune” was a lie from the moment it passed his lips. We know the abolition of the Alternative Minimum Tax (AMT) will be a huge windfall for Trump; it accounted for 82 percent of his $38 million tax bill in 2005, the only year for which we’ve seen even partial IRS records. Slashing the tax rate to 25 percent for “pass-through” businesses is another payday for the Trump Organization, which happens to be comprised of 500 of them. And the phase-out of the estate tax after six years means the Trump heirs will get to keep all the candy—and billions of dollars—after Donald Sr. passes from the scene.
But if Donald Trump is smiling about his winnings, he and most Republicans in Congress are downright gleeful at the blue state bashing their tax bill will deliver. Halving the cap on the mortgage interest deduction from million-dollars homes to just $500,000 means taxpayers in high-cost housing markets generally found in affluent Democratic states like California, New York and Massachusetts will get hammered. Perhaps even more damaging, ending the federal deduction for state and local taxes means Republicans on Capitol Hill will force fiscal austerity on high-tax, high-service Democratic states.
Writing in New York Magazine, Ed Kilgore explained the brutal math for blue state homeowners:
According to the most recent (2012–2014) available data, here are the locales where over 30 percent of new mortgages are over $500,000: Marin, C.A. (47 percent), New York, N.Y. (46 percent), San Francisco, C.A. (46 percent), San Mateo, C.A. (43 percent), Falls Church City, V.A. (37 percent), Santa Clara, C.A. (36 percent), and Arlington, V.A. (32 percent). That’s Manhattan plus metropolitan San Francisco and Washington.
But the damage to blue state budgets will be even greater if the pernicious GOP scheme to end the state and local tax deduction (SALT) comes to fruition. Even exempting property taxes up to $10,000 still means states from Oregon and California to New York, New Jersey and Connecticut will be pressured to cut taxes, reduce spending or both.
Why are Republicans now—and as they have since Ronald Reagan called it “the most sacred of cows”—seeking to kill the state and local tax deduction? Well, doing so will save an estimated $1.3 trillion over 10 years. And then there’s this:
What is clear is that residents in states that impose the highest combination of property taxes and individual and corporate income taxes would pay the most. Taxpayers in 10 states — California, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, Texas and Virginia — claim more than half of the total amount deducted, according to the Tax Policy Center. (Even in states without income taxes, including Nevada and Washington, some residents benefit because they can deduct sales taxes instead, the center said.) [Emphasis mine.]
Yes, these are all Democratic states. (All but Pennsylvania voted for Hillary Clinton for president, and the Keystone State has a Democratic governor.) But the GOP’s blue state payback doesn’t merely seek to punish likely (and wealthier) Democratic voters. It is, as the New York Times suggested, “a tax on blue state liberalism.”
To be sure, the SALT deduction helps wealthier taxpayers. (That said, 55 percent of taxpayers earning more than $75,000 a year take the deduction.) Overall, only about 30 percent of taxpayers itemize. By and large, this group is more affluent than Americans as a whole. But they disproportionately live in high-tax, high-service states. Ending the deduction for state and local taxes doesn’t just mean their tax bills will go up, but that the Democratic states they live in will be pressured to cut their own taxes and public services. Public services, that is, like education, health care, transportation, and infrastructure, just to name a few.
Now, the deduction for state and local taxes has been part of the federal tax code since the 16th Amendment was passed and the federal income tax implemented in 1913. It was part of the Civil War income tax as well. None other than Alexander Hamilton in the Federalist Papers warned that “all the resources of taxation might by degrees become the subjects of federal monopoly, to the entire exclusion and destruction of state governments.”
In a nutshell, that’s what conservatives now seek for Democratic state governments. By terminating this tax break, Republicans in Washington, D.C. can export their austerity to the states. They make no secret of it. As former Michigan Congressman Dave Camp described his objective in 2014, “This deduction redistributes wealth to big-government, high-tax states from small-government, low-tax states.” In June, Speaker Ryan gave the game away on CNBC when he was asked how he would sell the idea to his GOP colleagues in states like New York, New Jersey, Massachusetts, and California:
“I would say two things. First of all, look at tax reform in its totality. Seocnd of all, let’s get the tax rates as low as possible for everybody. Not based upon where you live. And third of all, let’s stop masking profligate governments, let’s stop disguising the inefficiencies of some of these state governments you just mentioned and make taxpayers and all of those other states … pay for these states don’t have their act together.”
Ryan’s charge is doubly disingenuous. After all, states like California and New York aren’t “profligate” or plagued by “inefficiencies.” Outside of Illinois (currently led by a Republican governor), these more affluent states very much have their “act together,” having long provided high levels of funding for education, infrastructure, health care and social services in exchange for the higher taxes they levy. Just as important, to put it in terms Paul Ryan can appreciate, it is generally the “maker” blue states that help enable “taker” red states thrive. In fact, this “red state socialism” is now the defining feature of American federalism. That is, even as supposed GOP budget hawks loudly (and wrongly) decry “out of control” spending by Uncle Sam, less well-off Republican-controlled states generally benefit from a one-way flow of federal tax dollars made possible by wealthier blue states usually dominated by Democrats. But that is as it should be. After all, Americans everywhere should want Americans anywhere to have the resources for the education, health care, and anti-poverty programs they deserve and may badly need. Patriotism, civic duty, community, and compassion shouldn’t end at the state line.
Unfortunately, Republican vindictiveness doesn’t either. As the House GOP tax plan shows, the joy of rewarding millionaires and billionaires with yet another payday for plutocrats pales in comparison to the Republicans’ schadenfreude over the blue state beat-down their scheme administers to residents of Democratic strongholds.