The GOP Takes Aim At The Golden Goose

The Republican tax “reform” plan takes partisan and regional politics to a new low. The plan deliberately targets voters in Democratic states for large tax increases, by eliminating the deductions for state and local taxes and, in the House plan, interest payments on mortgages. For voters in the Northeast and on the West Coast, where such taxes and, often, property values are high, the loss of these deductions could cause their federal income taxes to rise sharply.

Republican commentators such as Ramesh Ponnoru are justifying this extraordinarily partisan maneuver by saying, why should taxpayers subsidize big-spending governments? They imply, of course, that states such as New York and California are wasting money and imposing a burden on low-tax states such as Alabama and Texas.

Their rationale is profoundly dishonest and misleading, for several reasons. The truth is that the Republicans are desperate to find tax dollars that will offset large cuts for very rich individuals and, to a lesser extent, corporate tax cuts. So they have cynically, viciously targeted Democratic states to foot the bill. We are their golden goose.

“Wasteful Spending”…or Schools?

First, let’s talk about the supposedly profligate government programs that property taxes and local taxes fund. In the Northeast, we call them “schools”. In the US, unlike many other countries, local school districts, particularly affluent ones, mostly finance themselves, primarily through property taxes. Poor school districts may get some help from the state, in some Democratic states. (The mortgage deduction is also very important, but complicated, so we’ll defer that discussion.)

Local taxes can contribute to maintaining the schools, as well as maintaining roads, water systems and other prosaic but vital services. In New York state, where I live, our local taxes also include mandatory payments to support state-wide retirement plans for public employees such as police, teachers, etc. We’re not happy about those costs, and we would like to see them reined in.

However, unlike many other states, New York has fully funded its retirement plans. And it’s not a bad thing for police officers, firefighters and teachers to have a comfortable retirement (though some benefit plans may be too generous). That helps us attract competent people to serve the public.

State taxes in New York help to support a broad array of services, including publicly funded universities, a large public transportation system, and an extensive highway network. We also have relatively generous Medicaid programs and other safety nets for poor residents, unlike low-tax Southern states. Our taxes also pay for those public retirement plans.

Blue States Bankroll the South

So in New York, New Jersey, Massachusetts, and similar states, local and state governments invest heavily in school systems and provide decent safety nets for citizens. Partly because of those school systems, these states have well-educated populations and, overall, they are prosperous. We consistently send money to Washington.

We are not a burden on conservative, Southern states; we bankroll them. The federal government uses our tax dollars to shore up the social safety nets in those states by providing a disproportionate amount of their funding for Medicaid, disability payments and the like. Red states love to criticize “big government” and “liberal spending programs”. But they are happy to take the money, which helps to alleviate the suffering of their poor, sick or old citizens.

Switching the Tables

Let’s imagine what would happen if the Democrats won the House in 2018 and then launched a “tax reform” along the following lines. Senator Chuck Schumer and House Leader Nancy Pelosi announce a special tax surcharge of 10% on the residents of six states: Alabama, Florida, Georgia, Louisiana, Mississippi, and Texas.

“For far too long”, Sen. Schumer said, “these states have refused to pay their fair share for Federal programs like Medicare and Medicaid. They like to brag about their low taxes. But my friends, they’ve done that by bleeding the hard-working people of New York, New Jersey, California and other progressive states. It is time to end the unfair subsidies for these skinflints. We believe in states’ rights, too. Let them take care of their own problems.”

Up until now, we have benefited as a nation from a fundamental agreement among politicians from different parts of our vast country. The liberal states provided funding for the South and Southeast, because the leaders in those states thought it was the right thing to do, as Americans and Democrats.

However, it’s not clear that the ordinary citizen was aware of this arrangement.

Our country, so far, has avoided the profoundly acrimonious disputes that threaten the territorial integrity of the U.K., Spain and Belgium. Our leaders, fortunately, have shared a vision of national unity, despite the terrible legacy of our civil war.

The Republicans’ unfair tax plans could undermine that shared national vision, if Democratic leaders come under pressure from irate voters.

Maybe the Republicans should re-read that story about the golden goose.

The Wall Street Democrat