The Blue States like to point out that they pay more in Federal Taxes for lower levels of Federal spending than the Red States. What they fail to mention is that they pay a lower percentage per person than their Red State neighbors as the Federal Government allows individuals to write off their State and Local Taxes. Congress just capped that deduction at $10,000.00 per household. Congress just incentivized high income earners to vote with their feet and abandon blue states with high state and local taxes.
California senatrix Dianne Feinstein noticed this:
The blue states now face a stark choice. Their current propensity for raising taxes and fees is no longer offset by the Federal Government. The net exodus of the Middle Class from the Blue States will accelerate and extend into the upper middle class and the upper class as the pain registers. We have recent examples of this in support:
Good Riddance to the Blue State Model
By James Pierson, American Greatness
The new tax legislation approved this week by Congress and to be signed by President Trump includes a provision that will cap the deduction for state and local taxes (SALT) at $10,000 per household. (Businesses will still be allowed to deduct those taxes as business expenses.) The other provisions of the tax bill—especially the corporate tax rate cut—should encourage investment in the United States and spur faster economic growth. But the cap on state and local deductions may be the most significant in terms of its potential political consequences.
“Boon for the Rich”? Hardly
Up until now, taxpayers could deduct the total expense of state and local taxes from their federal tax bill, a provision in place since the federal income tax originated in 1913. These deductions subsidized high state and local taxes to some degree, or in any case alleviated the burdens of those taxes, especially for wealthy households. The main effect of this provision in the tax law will be to raise the federal tax bill for high income households in blue states like California, New York, Illinois, and Connecticut. The provision will only affect a small share of taxpayers—the 10 or 20 percent that itemize their deductions and previously could claim the full exemption for state and local taxes.
Indeed. My household has long since reconciled ourselves to retiring somewhere other than our current home in San Jose, California. The taxes and cost of living were too high to endure on a reduced income stream. This change will encourage us to do so even sooner, as the implications for property values as other higher income households flee to less heavily taxed havens will not serve our best interests.
The blue states could of course reform themselves of their profligate ways. But that would be a painful admission of failure.
With the SALT cap in place, governors and legislators in those high tax states will find it more and more difficult to deal with their fiscal problems by raising taxes on wealthy taxpayers and business owners. In the wake of the 2008 financial meltdown, governors in Connecticut, New Jersey, Illinois, and California signed legislation to raise state taxes to deal with financial shortfalls instead of making the more difficult choice to reduce expenditures. This may prove impossible to do in the future, given the incentive that wealthy taxpayers now have to pack up and leave for friendlier tax climates.
The public sector unions will be leading the resistance to any such common sense budget reform. The more successful those unions are, the worse the eventual crises will be.