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.