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Camp's House GOP Tax Plan Hits Blue Staters Hard

February 26, 2014

For three straight years, 95 percent of Republicans in Congress voted for the Paul Ryan budget and its overhaul of the tax code to just two rates of 10 and 25 percent. But while Ryan refused to identify a single tax break he would end in order to make those lower rates possible, on Wednesday House Ways and Means Committee Chairman Dave Camp (R-MI) did. As it turns out, two of the tax expenditures Camp is targeting--ending the state and local tax deduction and reducing the mortgage interest deduction-will disproportionately hit blue state residents.

As Bloomberg News reported, "A tax plan from House Ways and Means Committee Chairman Dave Camp would further limit the mortgage- interest break and end the deduction for state and local taxes, according to a nonpartisan congressional summary."

The mortgage proposal would reduce the amount of mortgage debt eligible for the interest deduction to $500,000 from $1 million, according to the document. The state and local tax break, which particularly benefits residents of high-tax states such as New York and New Jersey, would be eliminated.

To put it another way, Camp's proposal like other Republican efforts targets the more affluent, higher cost and more highly taxed states where Democrats generally hold sway.
As the nation approached the so-called "fiscal cliff" in November 2012, the Wall Street Journal explained the dynamic behind what conservatives like to call the "blue state tax break."

Limiting personal income-tax deductions and other federal tax breaks, an idea gaining momentum as part of a fix for America's budget crisis, would hit some parts of the country harder than others, with a series of high-income blue states leading the way...
After California, the highest average itemized deductions--all over $28,000--were claimed by taxpayers in New York, the District of Columbia, Connecticut, New Jersey, Maryland and Massachusetts. All have high state, local and property taxes, which may be deducted from income on federal returns, although other tax provisions already limit some deductions.

As the WSJ's interactive table shows, of the 10 states with the highest percentage of taxpayers itemizing deductions, 9 voted for Barack Obama for President. Only one of the bottom 10 (Florida) supported the Obama. The same is true for the percentage of households claiming the mortgage interest deduction. When it comes to the average dollar value of their home mortgage deductions, state and local income tax deductions and overall itemized deductions, blue states dominate. Only in the dollar value of their charitable deductions do red states top the table. (It is worth noting that charitable giving also reverts to form if contributions to churches and other religious institutions are not included.)
With their greater wealth, higher state and local taxes and steeper housing costs, blue state residents stand to lose more than their red state brethren by most base-broadening proposals. But that will also be true if President Obama gets his way with the expiring upper-income Bush tax cuts.
The conservative Daily Caller crowed about this point back in 2011. Tucker Carlson's rag responded to a call by some Democrats for a millionaires' surtax by rightly noting it "would hit Democratic states hardest."

For example, the 5.6 percent tax on million-dollar earners will hit 0.7 percent of taxpayers in New York, 1.2 percent of taxpayers in Connecticut and 0.4 percent of taxpayers in Colorado, according to an Oct. 6 report by the left-of-center group Citizens for Tax Justice (CTJ).
On average, 2.9 percent of taxpayers in the 18 states that elect two Democratic senators would be forced to pay the millionaire's surtax if it becomes law.
In contrast, only 1.7 percent of people in the 15 states that send two Republicans to the Senate would pay the surtax.

Analyses by the Tax Foundation in August found much the same thing. Looking at the potential expiration of the Bush tax cuts for all Americans (and not just the wealthy), the New York Post warned its readers that "New York, Blue States get hit with biggest hikes if Bush tax cuts expire." As CNBC summed it up, "the most-hit states are generally considered Democratic strongholds, while the least-hit are mostly Republican"
If Camp's plan became law, the dynamic of "red state socialism" by which federal tax dollars generally flow from wealthier Democratic states to less well-off Republican ones would only become more pronounced. Red state spending on education, unemployment insurance and (more than ever) health care has been and will continue to be underwritten by blue state taxpayers. (For more background, see "In Defense of Red State Socialism.") As Jonathan Cohn described it in the New Republic ("Blue States are from Scandinavia, Red States are from Guatemala"):

In blue America, state government costs more--and it spends more to ensure that everybody can pay for basic necessities such as food, housing, and health care. It invests more heavily in the long-term welfare of its population, with better-funded public schools, subsidized day care, and support for people with disabilities...
In the red states, government is cheaper, which means the people who live there pay lower taxes. But they also get a lot less in return. The unemployment checks run out more quickly and the schools generally aren't as good. Assistance with health care, child care, and housing is skimpier, if it exists at all. The result of this divergence is that one half of the country looks more and more like Scandinavia, while the other increasingly resembles a social Darwinist's paradise.

It's with good reason that Dana Milbank described red state America as a "Confederacy of Takers." The corollary is Democratic states represent a Union of Taxpayers.
Of course, none of Camp's proposals his will come to pass any time soon. Too afraid to anger any voters by closing any of the federal tax breaks and loopholes that cost Uncle Sam about $1.3 trillion a year, Senate Minority Leader Mitch McConnell (R-KY) has already declared tax reform dead on arrival for 2014. House Speaker John Boehner (R-OH) said, "You're getting a little bit ahead of yourself" when asked if Camp's plan is the GOP plan. Brushing off any idea of a vote this year by replying, "Ah, Jesus," Boehner simply explained:

"We're going to start the conversation today."

For Republicans, the discussion about punishing blue state taxpayers will be their favorite part of that conversation.
UPDATE: Writing at TPM, Sahil Kapur provides more background on Camp's "blue state payback." Camp himself has made no secret of his objective in targeting tax breaks that disproportionately benefit Democratic states. As the New York Times explained:

Mr. Camp's plan is open about this intention: "This deduction redistributes wealth to big-government, high-tax states from small-government, low-tax states." In fact, those states do a much better job of helping their most vulnerable citizens, improving education and mobility in big cities, and benefiting the country as a whole.


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Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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