Business Review Board / July 20, 2018

Dems Sue Trump Over Tax Cuts

Politicians in high-tax blue states seek to shield themselves from the consequences of their tax policies.

Several Democrat-run states joined forces this week in suing the federal government over last year’s Republican tax cut legislation. Led by New York, the states of New Jersey, Connecticut, and Maryland allege that the GOP’s tax overhaul was a purely politically motivated measure designed to interfere with how states manage their finances. New York Democrat Gov. Andrew Cuomo charged that the tax bill “was a political attempt to hurt Democratic states.” Fair weather federalists, these folks.

The crux of the issue is this: Under the new tax law, federal tax deductions for state and local taxes (SALT) are capped at $10,000. That means residents in these high-tax states will feel those taxes more acutely, making it politically more difficult for these state governments to maintain their high taxation policies. The Wall Street Journal reports, “In 2015, the states with the highest percentage of tax filers who claimed deductions for state and local taxes above $10,000 were blue states, according to the Pew Charitable Trusts.” That’s not surprising.

Cuomo’s coalition of high-tax states is asking the courts to declare the Republican tax law unconstitutional. Joseph Bishop-Henchman, executive vice president of the Tax Foundation, noted, “The concern that high state taxes might harm the competitiveness or attractiveness of a state like New York or Connecticut is a valid one, but the solution lays with revisiting those state tax rates rather than meritless litigation.” In other words, these spendthrift Democrats are suing because the new law removes the SALT cover that shielded them from the consequences of their tax-and-spend policies.

The Democrats’ complaints here are a bit ironic, given that they’re constantly calling for the rich to be taxed more, and given that their states’ high earners (mostly wealthy Democrats) will be paying more as things stand. In New York, 8.3% of these residents will be affected; in Connecticut, it’s 8.4%. Nationally, 6.3% will pay more. Scott Shackford at Reason also notes the Democrats’ hypocrisy, writing, “These SALT deductions are not claimed equally across the population. They disproportionately benefit the wealthiest citizens who itemize their taxes. New York calculates that New Yorkers will see a $14.3 billion tax hike without the SALT deductions. But that doesn’t mean the hike will be spread across all the citizens of the state. It’s those who earn more than $100,000 a year who claim 81 percent of SALT deductions.”

Here’s the bottom line: Prior to this tax reform, these high-tax blue states were being subsidized by low-tax (and more often than not Republican-run) states like Tennessee, which has no state income tax. Essentially, Cuomo is twisting the principles of federalism in an attempt to keep the lower-tax, fiscally sound states on the hook for helping to foot the blue states’ bills.

(Edited.)

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