Wednesday, December 6, 2017

The Tax Bill And The High-Tax States

     I suppose this was to be expected:

     Governors of three high-tax states said Monday they’re considering suing to stop the GOP-backed tax overhaul that limits deductions for state and local taxes.

     “We are looking at the legality now. This is double taxation. They are taxing the taxes,” said Gov. Cuomo during a conference call with California Gov. Jerry Brown and New Jersey Gov.-elect Phil Murphy.

     “This is from the party that is against taxation. This takes from the richest states and has them subsidize a tax cut for the less wealthy states. It may well be illegal and unconstitutional.”

     Any number of other federal policies that created tax-system-enabled transfers to the high-tax states evoked no protest from those states, back when. But it’s a bit like the joke about the laborer who found an extra dollar in his pay envelope one Friday and said nothing to anyone about it. On the subsequent Friday, his pay envelope was short one he went to his supervisor and complained.

     The supervisor cocked an eyebrow and said, “Last week you received a dollar too much. Why didn’t you say anything then?”

     The laborer drew himself up to his full offended dignity. “One mistake, I can overlook,” he said. “But not two.”

     Should Cuomo et alii elect to sue the federal government over the bill, I predict vigorous forum-shopping and copious media bloviation.

     Yes, the tax bill will negatively impact two groups of Americans:

  • Earners in high-income-tax states;
  • Homeowners in high-property-tax states.

     I’m one of each. I’ll take a hit, possibly two or three thousand dollars’ worth. But the correction of incentives is necessary. Indeed, it’s long overdue.

     The political dynamic has a lot in common with the behavior of predators of all kinds. As I wrote in Which Art In Hope:

     “Now, we know from historical data that predators of all sorts will concentrate where the prey is fattest. The State, which is merely an organized band of predators with a veneer of legitimacy derived either from tradition or from a manufactured appearance of the consent of its subjects, took a huge fraction of its subjects’ annual production from them in taxes.”

     (The lecturer who said that to his students, Arne Stromberg, holds the Edmond Genet Chair in Sociology at Gallatin University, one of the most prestigious institutions of higher learning on Hope, so you should give his views respectful consideration.)

     New York, California, Illinois, and New Jersey have crushing tax rates because several decades ago, political predators noticed that the residents of those states had higher incomes than the residents of other states. That created an incentive for those predators to flock to those states and worm their way into politics there. Within each of those states, the most voracious predators are usually found in the large cities, where the pickings are geographically concentrated and the conditions of life compel the centralization of important facilities. (It also helps that the media in large cities can easily be bought off, for reasons beyond the scope of this screed.) As the large corporation assumed economic dominance over the family business, the pursuit of one’s chosen trade led to a reduction in mobility, especially among senior and middle-aged workers. That worked to pin the “prey” in place.

     The federal government should never have collaborated with the state governments to subsidize the states’ predations via the federal tax system. The incentive for it grew as income tax rates rose, particularly during the New Deal years. Making state and local taxes deductible on one’s federal return helped Franklin D. Roosevelt to purchase the support of the states with the largest number of electoral votes.

     But what’s of greater import at this time is whether Cuomo and his High-Tax Comrades can find a federal judge willing to allow their suit.

     These days there isn’t much that can’t touch off a lawsuit. State governments don’t often sue Washington, but there are precedents for it. Should the bill reach President Trump’s desk in something close to its current form, I predict that Cuomo, Brown, and Murphy will sue over it.

     They’ll need a Clinton or Obama appointee to allow the suit to move forward. Nothing in the Constitution requires that Washington make any provision whatsoever for state and local taxes in its own tax systems. Thus, a judge who aced “Straining at Gnats and Swallowing Elephants” in law school and is politically aligned with the leftmost of the Left must be found. Unfortunately, there are plenty of them. However, should the suit survive to reach a federal appeals court, I’m confident that it would be dismissed with prejudice.

     Yes, the tax bill will hit me in the wallet. Still, it’s high time the high-tax states had some clamps put on their jaws. A great part of the reason those states have had trouble retaining young people lies in their tax systems, which make it very difficult to pursue the first years of one’s career there...unless you’re a lawyer or a politician, at least. Without young people a locale tends to ossify, both socially and economically. It doesn’t take long for extortionate taxes to reduce an economically vital region, as Long Island once was, to a retirement community.

     Therefore, it’s time to “take one for the team.” I hope other conservatives in situations such as mine will see it the same way.


D. Gottfried said...

Tax reform seems to be about finding a new way to slice up the same pie. Seems to me serious legislators would find a way to cut back the spending. (I know, "serious" and "legislator" may be an oxymoron)
Wealthy folks have accountants and tax attorneys (and politicians) to protect their income. What fool thinks he is going to get into Bill Gates' savings account? I think the tax dance is about keeping the plebes happy. The public side of DC plays to the lowest common denominator of the population. The back room protects the friendlies.
No legislator awash in gravy is going to compromise their situation by suddenly developing a conscience about calories.

jabrwok said...

You know, Texas has no state income tax. Or snow. And precious few Democrats outside of the major metros.

Just sayin'.

Bob T. said...

jabrwok -- Texans have been getting played for a long time by the "no state income tax" ploy. Our property taxes are significantly higher as a percentage of assessed value than in neighboring states that have an income tax. Vehicle registration fees are similarly exorbitant due to the set-by-locality county and city portions. The confiscatory property tax rate had been somewhat tolerable, until California transplants desensitized to high property values and similarly high rates of taxation were correctly identified as "rubes" by the native Texans and talked into freely paying more for their new Texas homes than they were, in fact, worth. This has had the entirely predictable effect of raising assessed values of property in general, much to the consternation of we who easily saw that particular unintended consequence of greed.

In spite of the halving of my property taxes that will happen when I reach an appropriately senior status and retire, this is not a state in which I care to remain. More accurately, if I *were* to consider making Texas my home in retirement, it certainly wouldn't be in any of the "blue hive" cities on which I'd be dependent for the medical care I'll inevitably need at some point. All that being said, San Antonio is the largest small town in which I've had the pleasure of living. Officially, the legal population is somewhere north of 1.2 million, with illegal aliens making up the balance of the city's estimated 1.5+ million inhabitants. I will definitely miss the ability to buy a decent Mexican food meal for $5 + tip, but this small town boy and his wife absolutely hate the traffic and incandescently stupid (and distracted) drivers who make up an increasingly large percentage of it.

Bob T. said...

I *had* a thought, and got distracted along the way toward making my point :-). Although I'd love to claim I'm willing to take one for the team by forgoing the ability to deduct property taxes on my federal return, that would be a lie I'm spared the ignominy of having to make. Last year was the first occasion of not being able to exceed the standard deduction by itemizing, in spite of paying mortgage interest, property taxes, etc. An increase in the standard deduction to compensate for pain I won't be feeling anyway suits me just fine.

Starve the beast. Anyone who reaches toward your wallet without your consent deserves to pull back a bloody stump.

Francis W. Porretto said...

I'm afraid you've misunderstood me, Bob. What I meant was that conservatives in high-tax states should support the tax reform bill and exhort their legislators to do so. Your property tax bill is still a legal deduction, and you should take it.

jabrwok said...

Bob T.: I've never itemized as the standard deduction has always exceeded anything up to which the itemization would've added. As for high property taxes, I don't really have a basis for comparison. I live in Brenham, and my property taxes on a 1,000 ft^2 house run about $1,400/year. I don't remember what I paid in taxes on my condo in Austin but I think it was comparable. That was back in the 90's though.

Bob T. said...

People who live in areas with high state and/or local income taxes as well as high property taxes are getting it from both directions :-(.

If/when Texas gets sucked into implementing an income tax, it will happen only with a promise (that won't be kept) to lower property tax rates. The "high property tax" issue in Texas is primarily a problem of the more densely populated counties such as Bexar, and the number of taxing entities that want their pound of flesh. jabrwok -- Thank you for the needed reminder that small towns *should* have more reasonable property taxes with fewer people feeding at the trough, so I would expect *significant* opposition to an income tax from the rural areas and small towns. The blue hives would view a property tax rate reduction as a significant inducement in terms of even considering the imposition of an income tax.

Speaking of taxing entities, Northside Independent School District is the biggest line item in my annual property tax bill: not at all surprising when you look at the *size* of NISD -- friggin' huge by any measure. Definitely not a fan of behemoth school districts. Smaller ones have less overhead, and are more accountable to their customers. Even if "per pupil spending" (no opinion on its suitability as any kind of metric) were to remain constant, carving NISD into multiple smaller districts would, I'm reasonably certain, result in a smaller tax bill. Criminy... NISD even has their own police force :-(.

The other taxing entities on the property tax bill go way beyond what I had to deal with in Oklahoma... There's a county component, a city component (that I'm not subject to as I am, for the moment, outside city limits), a community college district component (WTF?), an Emergency Services District component (recent addition -- we had a damned fine volunteer fire department that got by just fine with various fundraisers and regular donations from the community), a water district component, and a few others I can't remember. The ESD component is particularly annoying, as the organizations presumably getting that money still panhandle at major intersections on a regular basis (mostly fire/EMS personnel).

Harrumph! One might suspect I'm trying to burnish my curmudgeon credentials :-). Mostly, I'm just stating in a roundabout fashion my preference for non-citified life. A more recent article by our esteemed host touches on hypocrisy. The hypocrite I find most objectionable is the one who claims to desire a more bucolic existence, yet cheers the arrival of The Home Depot and Walmart within five miles of his "rural" home, and in point of fact, *actively* participates in making that defilement happen. "Teh Stoopid" is strong in these parts.

jabrwok said...

I have to amend my original comment. It's snowing here right now. Very weird.