December 6, 2012

Blue States to Get Higher Taxes They Voted For

Marc Comtois

Joel Kotkin at Forbes:

With their enthusiastic backing of President Obama and the Democratic Party on Election Day, the bluest parts of America may have embraced a program utterly at odds with their economic self-interest....Any move to raise taxes on the rich — defined as households making over $250,000 annually — strikes directly at the economies of these states, which depend heavily on the earnings of high-income professionals, entrepreneurs and technical workers....The top 10 states with the largest percentage of “rich” households under the Obama formula include true blue bastions Washington, D.C., which has the highest concentration of big earners, Connecticut, New Jersey, Maryland, Massachusetts, New York, California and Hawaii. The only historic “swing state” in the top six is Virginia, due largely to the presence of the affluent suburbs of the capital.

...Big metro areas supported Obama, particularly their core cities, by margins as high as four to one. Besides New York, the metro areas with the highest percentage of high-earning households include such lockstep blue cities as San Francisco, Washington, San Jose, Atlanta and Los Angeles.

...Of course, one can argue that these changes follow the precepts of social justice: Rich people and rich regions should pay more. Yet being “rich” means different things in different places, due to vast differences in costs of living. The cost of living in New York and Los Angeles, for example, is so high that the adjusted value of salaries rank in the bottom fifth in the nation. In other words, a couple with two children with a $150,000 income in Austin or Raleigh may be, in terms of housing and personal consumption, far “richer” than one making twice that in New York or Los Angeles.

Jim Geraghty proposes taking it all a bit further.
From this, the GOP could conceivably propose a “tax Blue America” plan:

* Keep the tax rate on capital gains the same.
* Raise income taxes on the top income bracket for 2013, those making $398,350 and up (single filers, married joint filers, or head of household).
* Means-test, or eliminate entirely, the mortgage-interest deduction (which benefits taxpayers in areas with the highest real-estate values and mortgages — i.e., Hawaii, D.C., New York, California, and Connecticut).
* Means-test or eliminate entirely the federal deduction of state and local taxes, which is disproportionately utilized by those in high-tax blue states: “In 2005, taxpayers in California and New York together made up 20 percent of those claiming the deduction and accounted for 30 percent of its value. Itemizers in New York, New Jersey, Connecticut, and California claimed on average over $12,000 per household.”

Matthew Yglesias agrees with at least part of Geraghty's plan:
...Geraghty is right that the state and local tax deduction primarily benefits residents of blue states since blue states have high taxes, and so does the mortgage interest tax deduction because blue states have expensive houses.

I think this is a fine idea, but I'm especially enthusiastic about the mortgage part. Suppose homeowners in expensive coastal cities couldn't deduct their mortgage interest, what would happen? Well, what would happen is that prices would fall. But nothing more dramatic than that. All the deduction does is encourage further bidding up of the price. In a normal market, that bidding up of the price might lead to additional construction. But the main reason those blue metro areas have such expensive houses is that zoning doesn't allow demand to be matched with supply. No matter how expensive Georgetown or Harvard Square or Park Avenue gets they're not demolishing the existing structures and replacing them with much larger ones. So you'd get some extra tax revenue this way with no real change in the amount of underlying economic activity.

Hey, they asked for it.

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.

Cost of living is an interesting policy consideration. A $250k household income isn't even close to rich in DC or Northern Virginia. If two earners have college degrees and have worked for the Federal government for more than 15-20 years, then they are likely over that threshold. Modest single family homes here cost $700k, so everything is relative.

Posted by: Dan at December 6, 2012 11:51 AM

Give it to them good and hard. If I was Boehner I would pass a 50% rate and run against Nobama, Reid and Pelosi protecting the Democrat millionaires, billionaires and trillionaires.
We're in fiscal craziness anyhow-F*** 'em all.

Posted by: Tommy Cranston at December 6, 2012 12:10 PM
I think this is a fine idea, but I'm especially enthusiastic about the mortgage part. Suppose homeowners in expensive coastal cities couldn't deduct their mortgage interest, what would happen? Well, what would happen is that prices would fall. But nothing more dramatic than that.

What a terrible idea, unless you're trying to tank the economy a second time. What would happen is hundreds of thousands of us on the front-end of mortgages would walk, leaving the banks with yet another round of foreclosed properties, which as we've seen has little or no effect on the economy, right?

Posted by: Russ at December 6, 2012 3:02 PM

@russ-you'd walk out on your mortgage and your credit rating would go lower than the toilet floor-sounds fair to me

Posted by: joe bernstein at December 6, 2012 8:37 PM

Yes let's all eat the rich for lunch. Then all those poor people will benefit. You know those poor people that create all the jobs. We will all be content to goose step to Husseins vision of Amerika. Someday we will all rejoice at the fact that we dwell in hovels like Husseins brother. Hussein will drive the "rich" away and then take aim at his real target....the great white middle class. Once vaccinated with HusseinCare they will be much easier to control. Then the Hussein Dynasty can truly begin. Liberalism and statism run amok. With the borders compromised it won't take long for Amerika to be run over with new Democrat voters. (did that already happen?) Rhode Island will qualify for federal funding to add food stamps to the left hand of the (In)dependent Man.

Posted by: ANTHONY at December 7, 2012 12:20 AM

eqSUH9 Been a busy weekend, but I took a little time to refill the “Gun Death?” magazine as it ran dry with this morning’s post. Was talking about a few of the upcoming stories that I’m particularly impressed with, and she

Posted by: toptops at January 22, 2013 8:30 AM
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