The Tax Bill May Test Blue States’ Willingness to Subsidize Red States

Attorneys general from California, New York, and New Jersey have said they plan to take the federal government to court.

The Republicans passed a tax cut Wednesday. President Donald Trump signed it today. Most of the attention has been on its enriching of the fabulously wealthy (like Trump) and on the GOP’s hypocrisy. Less attention is paid to this, though: It’s a tax on blue states.

To pay for permanently lowering rates for corporations and the rich, and temporarily lowering rates for the middle class, the Republicans needed a reliable source of money. They focused on what’s called state and local tax, or SALT, deductions. You and I can deduct our state and local taxes from our gross federal income. Getting rid of that gave the Republicans most of the money they needed.

It could have been worse. Senate Republicans originally wanted to eliminate SALT deductions entirely. That changed to a partial elimination. Tax filers can now deduct up to $10,000 in state and local taxes. Combined with other things, middle-class taxpayers in blue states will probably see a slight decrease in taxes in the short term.

After 10 years, they might see a slight increase. My point, however, is about blue states as a whole. Blue states like Connecticut have a lot of affluent residents paying over $10,000 in state and local taxes. As a whole, blue states will see a net loss.

This is on top of an existing net loss.

Compared to red states, blue states are richer, more educated and more diverse. They send the U.S. Treasury more than red states do while receiving less. That means blue states are subsidizing red states. Because blue states lean liberal and red states lean conservative, that means blue states are subsidizing red-state conservatism.

Liberals usually don’t mind paying more, because they tend to believe everyone should pay for their fair share. Liberal states are richer, on balance, so their citizens don’t mind helping people in red states live in ways a majority of them deems appropriate, even if that results in the disenfranchisement of minority and out groups.

Conservatives usually don’t believe in everyone paying their fair share, because they suspect that someone, somewhere, is taking unfair advantage of the system (think: “welfare queens,” “deadbeat dads,” “anchor babies”). All things being equal, liberals tolerate this out of indifference or deference to the constitutional right of states to pursue their fates.

But this new law tests the limits of liberal tolerance. Conservatives don’t want people to take unfair advantage of the system, yet that’s exactly what they are doing. Blue states pay their share, but red states want more. It looks less like a tax cut and more like plunder.

It’s more than that.

Because blue state are about to send more money to red states, they can’t spend as much on infrastructure, education, children’s services and other programs a majority of their state residents deems important. As Yale’s Jacob Hacker noted in a coauthored op-ed in the New York Times: “Republicans have put the majority of their tax cuts on the nation’s credit card, but they handed most of the rest of the bill to blue states.” I’ll take that a step further to suggest that red states may be violating our sovereignty.

That should sound familiar.

After Barack Obama signed the Affordable Care Act, which was enormously generous to red states, conservatives fought to prevent the law from reaching and helping their poorest residents, citing their right not to be told what to do by the federal government. They brought their complaint to the US Supreme Court and partly won.

History is about to repeat itself. Attorneys general from California, New York and New Jersey have said they plan to take the federal government to court.

Liberals are known for their tolerance, but that’s about to run out.

John Stoehr

John Stoehr is a Washington Monthly contributing writer.