High Tax Blue States Meet the Trump Free Market

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High Tax Blue States Meet the Trump Free Market

[cap­tion id=“attachment_103940” align=“aligncenter” width=“800”] Via Kirk’s Mar­ket Thoughts[/caption]

Russ DeKuyper: You know how much I gotta make to keep $300 cash in our tax bracket? I gotta make 800, maybe $1000. That’s why I want that check. Now, you give me that $1000.
Archie Bunker: Why, you copper-​plated phony, you. You’re money nuts. When this was just a raggy fur, you couldn’t care less about it. Now it’s $300, your whole world lights up.
Russ DeKuyper: You bet it does. You really bet it does. Three hun­dred bucks tax free is really illuminating.

All in the Fam­ily Edith gets a Mink 1972

We are hear­ing a lot of com­plaints from peo­ple like Chuck Schumer and Nancy Pelosi about the new Trump Tax law. I don’t blame them, it’s one more brick sup­port­ing the indi­vid­ual demo­c­rat wel­fare states removed.

Because of the deductablity of state and local taxes, when item­iz­ing (which peo­ple of means gen­er­ally do as they can almost always find more than the stan­dard deduc­tion in write offs) tax increases in state taxes and local taxes while annoy­ing were not pro­hib­i­tive for peo­ple liv­ing in high tax states. So when Democ­rats make pitches like this one described by Chris Christie back in 2012 while he was stump­ing in Atkin­son NH

35 years ago we didn’t have an income tax in NJ no income tax like right here in NH, we had no income tax and Gov­er­nor Bren­don Byrne, a demo­c­rat said: If you just give me a small income tax, a lit­tle one, I will lower your prop­erty taxes, we had the high­est prop­erty taxes in Amer­ica back in 1977 so 35 years later, what have we got? We’ve STILL got the high­est prop­erty taxes in Amer­ica and the income tax that started at 2% under gov­er­nor Byrne is now 9%”

…they knew they could mit­i­gate the effects for the rich who would be get­ting the biggest hit because that 2% tax which would became 9% along with those high prop­erty taxes they were already pay­ing, would come right off their fed­eral taxes.

Now think of states like Cal­i­for­nia where all the celebs are all anti-​trump all the time. If you are doing a TV series and mak­ing say $100K an episode. California’s 13.3% tax rate costs you $13,300 per episode, BUT because of fed­eral deduc­tion for state taxes, that adds up to 5253.50 right off the top of your fed­eral tax bill. Over a 26 episode sea­son that’s $136,591 a year in taxes you aren’t pay­ing to the feds. It’s like get­ting paid for an extra episode tax free!

As Archie Bunker might say: “Dat ain’t hap­penin’ no more.”

Start­ing in 2018 California’s 13.3% income tax really costs 13,300 per $100,000 made and New Jersey’s 9% tax rate really costs 9000 per 100,000 and if you are a per­son with a Mil­lion dol­lar prop­erty a 5% prop­erty tax really costs $50,000 a year.

And it’s not just states, there are plenty of cities that have their own income taxes like Wash­ing­ton DC , Bal­ti­more, Den­ver, NYC,

And since the peo­ple get­ting these deduc­tions are by nature the most mobile, sud­denly you have the prospect of the slow exo­dus of such peo­ple to low tax states and cities becom­ing a stam­pede that you have to some­how curb.

In other words you have to com­pete!

No longer will it be a gimme for lib­er­als to buy off activists or pack state bureau­cra­cies the feds aren’t going to sub­si­dize these vote buy­ing schemes anymore.

Now you have to give the vot­ers a rea­son to stay while at the same time explain­ing to your base that if you don’t there will be no gravy train left to ride on.

This is why not a sin­gle Demo­c­rat voted for this tax bill, they knew that if it’s passed their over­whelm­ing demo­c­rat leg­is­la­ture would face a day of reck­on­ing. That day has now arrived.

Wel­come to the free mar­ket folks!

I should add one caveat to this. All of these states and cities have one advan­tage that their wor­ried coun­ter­parts in Ger­many and Aus­tralia don’t. The Trump boom that these tax cuts will pro­duce increased rev­enues that might, just might, give them enough wig­gle room to make these needed changes to their tax codes over time and thus less painful.

But their win­dow of oppor­tu­nity is going to be a very slim one, will they open said win­dow or push it closed and wait for these tax cuts expire?

Update: I’ve got­ten emails ask­ing about NH & Ten­nessee listed as 5% & 6% respec­tively when they don’t have a state income tax, how­ever both Ten­nessee and NH both tax div­i­dend and inter­est income and thus those taxes would be deductible in the exam­ples above, full details here.

Via Kirk’s Market Thoughts

Russ DeKuyper: You know how much I gotta make to keep $300 cash in our tax bracket? I gotta make 800, maybe $1000. That’s why I want that check. Now, you give me that $1000.
Archie Bunker: Why, you copper-plated phony, you. You’re money nuts. When this was just a raggy fur, you couldn’t care less about it. Now it’s $300, your whole world lights up.
Russ DeKuyper: You bet it does. You really bet it does. Three hundred bucks tax free is really illuminating.

All in the Family Edith gets a Mink 1972

We are hearing a lot of complaints from people like Chuck Schumer and Nancy Pelosi about the new Trump Tax law. I don’t blame them, it’s one more brick supporting the individual democrat welfare states removed.

Because of the deductablity of state and local taxes, when itemizing (which people of means generally do as they can almost always find more than the standard deduction in write offs) tax increases in state taxes and local taxes while annoying were not prohibitive for people living in high tax states. So when Democrats make pitches like this one described by Chris Christie back in 2012 while he was stumping in Atkinson NH…

35 years ago we didn’t have an income tax in NJ no income tax like right here in NH, we had no income tax and Governor Brendon Byrne, a democrat said: If you just give me a small income tax, a little one, I will lower your property taxes, we had the highest property taxes in America back in 1977 so 35 years later, what have we got? We’ve STILL got the highest property taxes in America and the income tax that started at 2% under governor Byrne is now 9%”

…they knew they could mitigate the effects for the rich who would be getting the biggest hit because that 2% tax which would became 9% along with those high property taxes they were already paying, would come right off their federal taxes.

Now think of states like California where all the celebs are all anti-trump all the time. If you are doing a TV series and making say $100K an episode. California’s 13.3% tax rate costs you $13,300 per episode, BUT because of federal deduction for state taxes, that adds up to 5253.50 right off the top of your federal tax bill.   Over a 26 episode season that’s $136,591 a year in taxes you aren’t paying to the feds.  It’s like getting paid for an extra episode tax free!

As Archie Bunker might say: “Dat ain’t happenin’ no more.”

Starting in 2018 California’s 13.3% income tax really costs 13,300 per $100,000 made and New Jersey’s 9% tax rate really costs 9000 per 100,000 and if you are a person with a Million dollar property a 5% property tax really costs $50,000 a year.

And it’s not just states, there are plenty of cities that have their own income taxes like Washington DC , Baltimore, Denver,  NYC,

And since the people getting these deductions are by nature the most mobile,  suddenly you have the prospect of the slow exodus of such people to low tax states and cities becoming a stampede that you have to somehow curb.

In other words you have to compete!

No longer will it be a gimme for liberals to buy off activists or pack state bureaucracies the feds aren’t going to subsidize these vote buying schemes anymore.

Now you have to give the voters a reason to stay while at the same time explaining to your base that if you don’t there will be no gravy train left to ride on.

This is why not a single Democrat voted for this tax bill, they knew that if it’s passed their overwhelming democrat legislature would face a day of reckoning.  That day has now arrived.

Welcome to the free market folks!

I should add one caveat to this.  All of these states and cities have one advantage that their worried counterparts in Germany and Australia don’t.  The Trump boom that these tax cuts will produce increased revenues that might, just might, give them enough wiggle room to make these needed changes to their tax codes over time and thus less painful.

But their window of opportunity is going to be a very slim one, will they open said window or push it closed and wait for these tax cuts expire?

Update:  I’ve gotten emails asking about NH & Tennessee listed as 5% & 6% respectively when they don’t have a state income tax, however both Tennessee and NH both tax dividend and interest income and thus those taxes would be deductible in the examples above, full details here.