The End of the Federal Tax Subsidy for Blue States

Jack Hays · May 16, 2018

Sometimes good government can also be good politics. It may be that the most important provision of the recent tax cut was the cap on deductions for state and local taxes. This ends the federal tax subsidy for high tax blue states and localities. It also poses some difficult strategic problems for the Democrats' coalition.

Democrats are about to have to pay up

By Megan McArdle

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.
That panic generated some desperate ideas. The most popular, currently, is allowing people to convert tax payments above the $10,000 cap into a “charitable donation.” New York, New Jersey and Connecticut have already passed laws to allow this.
While charmingly innovative, this approach is likely to fall afoul of tax courts, as will the other proposed tactics. Blue-state taxpayers may finally have to confront the full cost of the government they want. And Democrats will finally have to confront the tension between what those voters want government to do and what they’re willing to pay for. . . .

longview · May 16, 2018

Jack Hays said:
Sometimes good government can also be good politics. It may be that the most important provision of the recent tax cut was the cap on deductions for state and local taxes. This ends the federal tax subsidy for high tax blue states and localities. It also poses some difficult strategic problems for the Democrats' coalition.

Democrats are about to have to pay up

By Megan McArdle

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.
That panic generated some desperate ideas. The most popular, currently, is allowing people to convert tax payments above the $10,000 cap into a “charitable donation.” New York, New Jersey and Connecticut have already passed laws to allow this.
While charmingly innovative, this approach is likely to fall afoul of tax courts, as will the other proposed tactics. Blue-state taxpayers may finally have to confront the full cost of the government they want. And Democrats will finally have to confront the tension between what those voters want government to do and what they’re willing to pay for. . . .

“charitable donation.” Sounds voluntary, I wonder if those states will charge those who do not volunteer with a crime?

Jack Hays · May 16, 2018

longview said:
“charitable donation.” Sounds voluntary, I wonder if those states will charge those who do not volunteer with a crime?

Courts will likely rule it a tax-avoidance subterfuge and toss it.

chuckiechan · May 16, 2018

Jack Hays said:
Sometimes good government can also be good politics. It may be that the most important provision of the recent tax cut was the cap on deductions for state and local taxes. This ends the federal tax subsidy for high tax blue states and localities. It also poses some difficult strategic problems for the Democrats' coalition.

Democrats are about to have to pay up

By Megan McArdle

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.
That panic generated some desperate ideas. The most popular, currently, is allowing people to convert tax payments above the $10,000 cap into a “charitable donation.” New York, New Jersey and Connecticut have already passed laws to allow this.
While charmingly innovative, this approach is likely to fall afoul of tax courts, as will the other proposed tactics. Blue-state taxpayers may finally have to confront the full cost of the government they want. And Democrats will finally have to confront the tension between what those voters want government to do and what they’re willing to pay for. . . .

AFAIK, the test for charitable deduction is that it is voluntary. So if you choose to not pay your taxes that are above the cap, the state government can't do anything about it. Even if they do, IRS will bill you for the taxes, late fees, and penalties.

leekohler2 · May 16, 2018

Jack Hays said:
Sometimes good government can also be good politics. It may be that the most important provision of the recent tax cut was the cap on deductions for state and local taxes. This ends the federal tax subsidy for high tax blue states and localities. It also poses some difficult strategic problems for the Democrats' coalition.

Democrats are about to have to pay up

By Megan McArdle

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.
That panic generated some desperate ideas. The most popular, currently, is allowing people to convert tax payments above the $10,000 cap into a “charitable donation.” New York, New Jersey and Connecticut have already passed laws to allow this.
While charmingly innovative, this approach is likely to fall afoul of tax courts, as will the other proposed tactics. Blue-state taxpayers may finally have to confront the full cost of the government they want. And Democrats will finally have to confront the tension between what those voters want government to do and what they’re willing to pay for. . . .

That's interesting, since we pay red states deficits. Now we have to pay more for red states?

Hmm...maybe it is time for us liberals to arm ourselves.

From the same publication:

https://www.washingtonpost.com/news...states-want-even-more/?utm_term=.97997f6632ef

Casper · May 16, 2018

Jack Hays said:
Sometimes good government can also be good politics. It may be that the most important provision of the recent tax cut was the cap on deductions for state and local taxes. This ends the federal tax subsidy for high tax blue states and localities. It also poses some difficult strategic problems for the Democrats' coalition.

Democrats are about to have to pay up

By Megan McArdle

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.
That panic generated some desperate ideas. The most popular, currently, is allowing people to convert tax payments above the $10,000 cap into a “charitable donation.” New York, New Jersey and Connecticut have already passed laws to allow this.
While charmingly innovative, this approach is likely to fall afoul of tax courts, as will the other proposed tactics. Blue-state taxpayers may finally have to confront the full cost of the government they want. And Democrats will finally have to confront the tension between what those voters want government to do and what they’re willing to pay for. . . .

Or they can get rid of their state taxes, cut educational and support for the poor and aged, then get more money from the Federal Government, like Red States do.

Jack Hays · May 16, 2018

leekohler2 said:
That's interesting, since we pay red states deficits. Now we have to pay more for red states?

Hmm...maybe it is time for us liberals to arm ourselves.

From the same publication:

https://www.washingtonpost.com/news...states-want-even-more/?utm_term=.97997f6632ef

Casper said:
Or they can get rid of their state taxes, cut educational and support for the poor and aged, then get more money from the Federal Government, like Red States do.

It is progressive and enlightened for the better-off to pay more to help the less-well-off. As pointed out in the OP article, blue states possess a disproportionate share of wealth. That's why wealthy blue states pay more. What has ended is a subsidy from the less-well-off to benefit the better-off.

notquiteright · May 16, 2018

Jack Hays said:
Sometimes good government can also be good politics.

Maybe but this ain't it.... :roll:

It is a boon to the wealthy and a curse for most others. Even with the deduction these blue states send a surplus to the federal government which in turn subsidizes the reckless political crapfest many fly over states now have.

If the big blues cut their taxes and drift downward like Kansas or Oklahoma the rabid right must be figuring they can milk the federal government even more, thinking more federal tax money will roll in... :shock:

Right now Oklahoma's road and bridge projects are grinding to a halt due to a lack of state funds to match for federal handouts. Our teacher/classroom debacle is national news and a national disgrace. Funding for local law enforcement drying up. Local taxes and bond issues are going up as most Okies realize there is a real need for taxes to provide essential services.

No this is just another reckless rabid right bogus political attack... eace

notquiteright · May 16, 2018

Jack Hays said:
It is progressive and enlightened for the better-off to pay more to help the less-well-off. As pointed out in the OP article, blue states possess a disproportionate share of wealth. That's why wealthy blue states pay more. What has ended is a subsidy from the less-well-off to benefit the better-off.

But doesn't the rabid right rant against this noble attitude???

Actually red states take advantage of this subsidy by cutting taxes on their wealthy to the detriment of their less-well-off.

The tax deduction at the state level insures the wealthy pay into the state government (state rights is a Rabid Right thing when it is to their advantage) and directly assist the less-well- off, provide schools and safe roads instead of sending MORE money off to other states (red) that can't balance their budgets and depend on the federal teat to make it by.... eace

Jack Hays · May 16, 2018

notquiteright said:
Maybe but this ain't it.... :roll:

It is a boon to the wealthy and a curse for most others. Even with the deduction these blue states send a surplus to the federal government which in turn subsidizes the reckless political crapfest many fly over states now have.

If the big blues cut their taxes and drift downward like Kansas or Oklahoma the rabid right must be figuring they can milk the federal government even more, thinking more federal tax money will roll in... :shock:

Right now Oklahoma's road and bridge projects are grinding to a halt due to a lack of state funds to match for federal handouts. Our teacher/classroom debacle is national news and a national disgrace. Funding for local law enforcement drying up. Local taxes and bond issues are going up as most Okies realize there is a real need for taxes to provide essential services.

No this is just another reckless rabid right bogus political attack... eace

Then Oklahoma should stop subsidizing New York, et al.

Jack Hays · May 16, 2018

notquiteright said:
But doesn't the rabid right rant against this noble attitude???

Actually red states take advantage of this subsidy by cutting taxes on their wealthy to the detriment of their less-well-off.

The tax deduction at the state level insures the wealthy pay into the state government (state rights is a Rabid Right thing when it is to their advantage) and directly assist the less-well- off, provide schools and safe roads instead of sending MORE money off to other states (red) that can't balance their budgets and depend on the federal teat to make it by.... eace

Sorry, but constant use of the "rabid right" rant sends your posts into the "not serious" bin.

ALiberalModerate · May 16, 2018

Jack Hays said:
Sometimes good government can also be good politics. It may be that the most important provision of the recent tax cut was the cap on deductions for state and local taxes. This ends the federal tax subsidy for high tax blue states and localities. It also poses some difficult strategic problems for the Democrats' coalition.

Democrats are about to have to pay up

By Megan McArdle

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.
That panic generated some desperate ideas. The most popular, currently, is allowing people to convert tax payments above the $10,000 cap into a “charitable donation.” New York, New Jersey and Connecticut have already passed laws to allow this.
While charmingly innovative, this approach is likely to fall afoul of tax courts, as will the other proposed tactics. Blue-state taxpayers may finally have to confront the full cost of the government they want. And Democrats will finally have to confront the tension between what those voters want government to do and what they’re willing to pay for. . . .

Here is the problem with this argument. Those wealthy coastal blue states with high state taxes, they also are all donor states. By that, I mean they all pay far more in federal taxes than they get back in federal spending. Thus their residents have been subsidizing lower tax red states for decades.

So if we are going to get rid of the federal tax subsidy as you call it for them, then all these rural red states need to quit living off of the taxpayers in those blue states.

If a state already gets back in spending, more than its residents pay in federal taxes, then they are not paying for the deductions for state taxes in a state like NY. In fact, by capping those state tax deductions, the situation only gets more unfair for taxpayers in states like NY and New Jersey as even more of their tax dollars flow out to rural red states.

Its like a welfare recipient bitching about a wealthy taxpayer being able to deduct their charitable contributions.

Jack Hays · May 16, 2018

SouthernDemocrat said:
Here is the problem with this argument. Those wealthy coastal blue states with high state taxes, they also are all donor states. By that, I mean they all pay far more in federal taxes than they get back in federal spending. Thus their residents have been subsidizing lower tax red states for decades.

View attachment 67233177

So if we are going to get rid of the federal tax subsidy as you call it for them, then all these rural red states need to quit living off of the taxpayers in those blue states.

If a state already gets back in spending, more than its residents pay in federal taxes, then they are not paying for the deductions for state taxes in a state like NY. In fact, by capping those state tax deductions, the situation only gets more unfair for taxpayers in states like NY and New Jersey as even more of their tax dollars flow out to rural red states.

Its like a welfare recipient bitching about a wealthy taxpayer being able to deduct their charitable contributions.

My #7 repeated:

It is progressive and enlightened for the better-off to pay more to help the less-well-off. As pointed out in the OP article, blue states possess a disproportionate share of wealth. That's why wealthy blue states pay more. What has ended is a subsidy from the less-well-off to benefit the better-off.

notquiteright · May 16, 2018

Jack Hays said:
Then Oklahoma should stop subsidizing New York, et al.

I don't think you have had enough coffee-

New York subsidies states like Oklahoma which is ruled by the rabid right. The rabid right state lawmakers want to cut local taxes to 'boost jobs' and bring in new companies (it had done none of that) but now see a way to milk blue states of even more money to try and prop up their literally bankrupt fiscal policy. Nothing good about it. The Blue states see keeping the money at the state level as better than sending their money to DC to prop up failed fly over states.

The rabid right agrees when it benefits them and wants government hand-outs when they can't balance their budget using their farcical fiscal foolishness... eace

Jack Hays · May 16, 2018

notquiteright said:
I don't think you have had enough coffee-

New York subsidies states like Oklahoma which is ruled by the rabid right. The rabid right state lawmakers want to cut local taxes to 'boost jobs' and bring in new companies (it had done none of that) but now see a way to milk blue states of even more money to try and prop up their literally bankrupt fiscal policy. Nothing good about it. The Blue states see keeping the money at the state level as better than sending their money to DC to prop up failed fly over states.

The rabid right agrees when it benefits them and wants government hand-outs when they can't balance their budget using their farcical fiscal foolishness... eace

It is progressive and enlightened for the better-off to pay more to help the less-well-off. As pointed out in the OP article, blue states possess a disproportionate share of wealth. That's why wealthy blue states pay more. What has ended is a subsidy from the less-well-off to benefit the better-off.

KLATTU · May 16, 2018

The cap on SALT was a taxing rich, which is progressive and also what is normally applauded by the left.

notquiteright · May 16, 2018

Jack Hays said:
It is progressive and enlightened for the better-off to pay more to help the less-well-off. As pointed out in the OP article, blue states possess a disproportionate share of wealth. That's why wealthy blue states pay more. What has ended is a subsidy from the less-well-off to benefit the better-off.

You don't believe that- you believe in universal healthcare???

The problem is the rabid right red states COUNT on the feds milking the Big Blues for them so the rabid rights can ruin their budgets and get federal help to bail them out. Rather than depend on federal handouts the red states could easily have their better off help their less-well-off but instead chose to give the wealthy even better tax deals... :doh

I'd argue the Big Blues don't have anything disproportionate in money- the cost of living is very different from Manhattan vs OKC. The Big Blues have far more people to help than the fly-over states. Far more infrastructure, schools, hospitals, lost industry...

Funny how states' rights gets dropped when the rabid right sees a way to attack the better off big blue states to try and prop up a collapsing crap pile they have made of their states... eace

ALiberalModerate · May 16, 2018

Jack Hays said:
My #7 repeated:

It is progressive and enlightened for the better-off to pay more to help the less-well-off. As pointed out in the OP article, blue states possess a disproportionate share of wealth. That's why wealthy blue states pay more. What has ended is a subsidy from the less-well-off to benefit the better-off.

I am sorry, but that is ridiculous. The well off are already subsidizing the less well off. When you cap the state and local tax deduction, then you are only increasing that subsidy.

Point being, if there is a concern about fairness (which is what this garbage is being pitched as), then step one would be eliminating those geographic wealth transfers in the first place. If that doesn't happen, which it never will, then since taxpayers from states like California and New York see much of their federal tax dollars funneled to states like Mississippi and Wyoming, at least they ought to be able to fully deduct their state and local taxes from their federal tax liabilities.

ALiberalModerate · May 16, 2018

KLATTU said:
The cap on SALT was a taxing rich, which is progressive and also what is normally applauded by the left.

It only increases the wealth transfers from states like NY and California to states like Mississippi and Oklahoma. I thought you guys were against wealth transfers? Think how much lower taxes would be in a state like New Jersey if they did not have all these freeloaders that benefited from their federal tax dollars in more rural states. Part of why state taxes are higher in a state like NY is they get far less back in federal spending than they pay in federal income taxes thus the state has to be pick up the slack.

ALiberalModerate · May 16, 2018

notquiteright said:
You don't believe that- you believe in universal healthcare???

The problem is the rabid right red states COUNT on the feds milking the Big Blues for them so the rabid rights can ruin their budgets and get federal help to bail them out. Rather than depend on federal handouts the red states could easily have their better off help their less-well-off but instead chose to give the wealthy even better tax deals... :doh

I'd argue the Big Blues don't have anything disproportionate in money- the cost of living is very different from Manhattan vs OKC. The Big Blues have far more people to help than the fly-over states. Far more infrastructure, schools, hospitals, lost industry...

Funny how states' rights gets dropped when the rabid right sees a way to attack the better off big blue states to try and prop up a collapsing crap pile they have made of their states... eace

The Big Blues generate the bulk of the GDP in this country. They would be doing good to have a paved road or flush toilets in the whole damn state of Mississippi if it were not for taxpayers in states like California, NY, and hell Texas for that matter.

Jack Hays · May 16, 2018

notquiteright said:
You don't believe that- you believe in universal healthcare???

The problem is the rabid right red states COUNT on the feds milking the Big Blues for them so the rabid rights can ruin their budgets and get federal help to bail them out. Rather than depend on federal handouts the red states could easily have their better off help their less-well-off but instead chose to give the wealthy even better tax deals... :doh

I'd argue the Big Blues don't have anything disproportionate in money- the cost of living is very different from Manhattan vs OKC. The Big Blues have far more people to help than the fly-over states. Far more infrastructure, schools, hospitals, lost industry...

Funny how states' rights gets dropped when the rabid right sees a way to attack the better off big blue states to try and prop up a collapsing crap pile they have made of their states... eace

I've never been big on states' rights.
Better health coverage might be in reach now that the blue state subsidy has ended.

Jack Hays · May 16, 2018

SouthernDemocrat said:
The Big Blues generate the bulk of the GDP in this country. They would be doing good to have a paved road or flush toilets in the whole damn state of Mississippi if it were not for taxpayers in states like California, NY, and hell Texas for that matter.

And yet they have benefited (until now) from a subsidy paid for by the less fortunate.

notquiteright · May 16, 2018

SouthernDemocrat said:
The Big Blues generate the bulk of the GDP in this country. They would be doing good to have a paved road or flush toilets in the whole damn state of Mississippi if it were not for taxpayers in states like California, NY, and hell Texas for that matter.

It was like a double dose of Trumpy 'alternate facts' bot dribble... imagine the rabid right would ever demand the wealthy give even more in taxes and to the DC devil of all things... :shock:

Only if it hurts the states with YUGE populations that don't see the 'wonders' done in Kansas or Oklahoma as desirable to the average Joe... eace

MrWonka · May 16, 2018

Jack Hays said:
This ends the federal tax subsidy for high tax blue states and localities.

You don't appear to know what a subsidy is. The previous law said that so long as blue states are willing to tax themselves and pay for their own education and infrastructure there is no reason for the Federal government to tax them again. The law is designed to prevent low tax states red states from stealing business from higher tax blue states by sabotaging their own education systems. Now you're forcing liberal blue states who previously had very good and very well funded education systems to choose between creating jobs and education. Instead of making conservative states raise their taxes to improve their educational systems you're trying to bring sabotage the good educational systems of blue states. Yet another disgusting race to the bottom. Conservatives just can't win elections unless they can keep the population ignorant can they?

notquiteright · May 16, 2018

Jack Hays said:
I've never been big on states' rights. Better health coverage might be in reach now that the blue state subsidy has ended.

I'd LOVE to see the numbers and plan you think would make this 'better' healthcare possible... but you ducked the question- do you favor universal health care run and financed by the federal government? You want the feds and not the states to develop and administer so wide reaching a program???

So you didn't support the new tax laws passed in congress lowering the tax rates? Lowering corporate taxes??? After all the better off should help the less well off... :roll:

But the red states aren't less well off, they have deliberately ruined their economies, their tax base in some warped rabid right failed economic folly and fully expect the feds to prop them up so of course they want a new revenue stream to keep the party going.

No you only favor a very targeted elimination of a tax deduction- one that hits the rabid right's enemies- it is the world stood on end to see a conservative demand MORE taxes for the wealthy... and cheap political partisanship...

Would you be in favor of ending the red state subsidy where MORE federal money pours into a state than they pay in??? Seems highly biased and who knows, we could reach universal health care coverage if the red states grew up and created a budget that paid it's bills to include getting our education system out of the basement... eace

The End of the Federal Tax Subsidy for Blue States

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