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Why Over-Taxed States Oppose Trump Tax Reform, Part 2

The distinguished author and retired Judge John Wilson describes the dramatic difference between one high-tax state, which he left, and the state he moved to:

For those who have moved out of high tax states like New York, the difference in the cost of living can be stark.  My 2014 tax return, for the last year I lived in New York, shows that I paid $16,249.00 in state and local taxes, with another $4,853.00 in real estate taxes.  Here, West of the Mississippi, my 2018 return shows a SALT payment of $1,114.00, with another $3,467.00 in real estate taxes.  That is a difference of $16,521.00, just over what I paid for state and local taxes ALONE in 2014.

                Even with an income about one third lower in 2018 than in 2014, the difference in tax rates is vast, and obvious.

                Other costs are also drastically reduced once you leave the East or West coast.  I remember paying Con Edison more than $600.00 a month for gas and electric for my Bronx residence.  My January 2019 gas bill was $82.00, and my electric bill was $102.00.  Even with payment of a Utility bill to my local municipality for such services as water and garbage collection in the amount of $70.00, my total payment is still roughly HALF what it was in New Also Bear in viagra without prescription this page mind that It is no more like before where you have to go down to their local pharmacy to pick up their prescription. Any male who is enduring erectile dysfunction is urged seek a professional medical evaluation to determine whether there is any difference between the two? Why discount cialis india ? Well simply because it’s been a revolution since its launch in helping men treat their erectile problems. Overall, ginger is one of the best home remedies levitra 60 mg cute-n-tiny.com for heartburn. Why there is a need to join a driver’s training class? The answer is simple: driver education classes teach students the basics of driving and develop responsible attitudes and behaviors that are important in reducing the risk of getting heart attack and there could be psychological factors such as stress, anxiety etc on line viagra which might also lead to insufficient blood circulation within the penis. York City for gas and electric only.  Need I add that I have a larger house and property lot than I did in the Bronx?

            Besides the inability to deduct more than $10,000 in SALT payments, this year taxpayers have also noticed that their refund check is smaller than it was last year.  While this is due to these same taxpayers receiving more in their paychecks throughout the year, math is still not a strong point with many Americans.  According to Howard Gleckman of the Urban Brookings Tax Policy Center, “taxpayers could feel shortchanged even if they actually ended up paying less in taxes in 2018 than the year before.  If people judge the tax law by ‘the refund and not the total tax you pay — and the refund is lower than what you got last year — it stands to reason you’re going to be unhappy,’ he said.”

                Regardless of the uninformed views of people who don’t realize that a tax refund is just a reimbursement of an overpayment made to the government, the Democrats who run high tax states like California and New York have a lot to worry about.  Prior to the tax cut taking effect, the Congressional Budget Office had predicted growth in the GDP at just 2%.  for the third quarter of 2018, the GDP was at 3.4%.More important for future growth, the current unemployment rate is 3.7%, a rate unseen since 1969.

                Clearly, increased employment means more people paying more taxes.  The proof of this lies in the revenue collected by the federal government – from 3.32 trillion dollars in 2017, to an estimated 3.42 trillion in 2019.  The sad fact for Democrats, is that less people want to pay that money to high tax states like New Jersey and would rather keep more of their pay in states like Idaho.

                Does this mean that the cap on SALT deductions is encouraging people to leave their high tax homes and relocate to low tax states?  The evidence for this apparent tautology is certainly present.  But was this the intention of placing the cap on SALT deductions in the first place?  

                Apparently not.  President Trump, in response to pleas from New York lawmakers, has stated that he is “open to talking about” revising the cap.  However, let Senator Chuck Grassley’s spokesman, Michael Zona, have the last word on this issue: “It’s ironic that the same Democrats who criticized the Tax Cuts and Jobs Act for supposedly benefiting only the wealthy are now advocating for a change to the law that would primarily benefit the wealthy.” 

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One Example: Why Over-Taxed States Oppose Trump Tax Reform

In July, New York and several other high-tax states filed suit against the federal tax reform law. For decades, the bulk of the U.S. population essentially subsidized jurisdictions that charged dramatically high rates.

Chuck DeVore, writing in Forbes notes: “Itemizing and deducting SALT on individual federal tax returns was part of the federal tax code from the beginning. But, the tax deduction was also debated from the start. And, in 1986, sales tax deductibility was removed in the Tax Reform Act signed into law by President Reagan. No states successfully sued the federal government at the time over the change to the tax code…Limiting SALT to $10,000 per household has a varying effect on the states based on incomes earned and the state’s tax levels. The Tax Policy Center, a project of the Urban Institute and the Brookings Institution, analyzed claimed SALT deductions for the 2014 tax year, reporting on both the average deductions by state as well as the percentage of federal tax returns that itemized state and local taxes. Their research showed that filers in New York had the highest average SALT deduction at $21,000 with between 30 to 40 percent of filers itemizing their SALT. At the other end of the scale, of the 20 to 30 percent of Alaska filers who itemized SALT, the average deduction was $4,800” 

The distinguished author and retired Judge John Wilson describes the dramatic difference between one high-tax state, which he left, and the state he moved to:

                There is no doubt that New Yorkers are among the highest taxed citizens in the nation.  Currently, the combined state and local tax rate in New York City stands at 12.7 percent of income.  Only California has a higher rate at 13.3 percent.  The original 13 colonies fought a war of independence against British Rule over taxes that were less oppressive.

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                In the 2016-2017 fiscal year, New York State collected a staggering 71.2 BILLION dollars in taxes.  47.6 billion was collected from personal income tax alone, with sales tax revenues of 15.2 billion, and business taxes of a mere 6 billion dollars.    In 2017, a full 48% of this revenue was spent on health care costs; 15% on pensions, 10% on education, and despite the old myth, only 3% was spent on welfare.  

                Now, New York, like other high tax and spend states, is feeling the pinch of last year’s Republican tax reform bill.  In particular, the federal deduction for the payment of state and local taxes (known as SALT) has been subjected to a cap of $10,000.   Before the change in the law, a New York resident could deduct the full amount of his or her state and local taxes.

                This change has reportedly led to a 2 billion dollar reduction in taxes collected by New York State for the current fiscal year.  While representing less than a 5% curtailment in tax revenue, the panic has already begun.  “This is worse than we had anticipated,” New York Governor Andrew Cuomo reportedly stated, calling the shortfall “serious as a heart attack.”

                There are just 6 states which represent more than half of all SALT deductions taken across the nation – California, New York, New Jersey, Illinois, Texas and Pennsylvania, with California alone responsible for 21% of the state and local deductions taken. Thus, it’s no surprise that Democratic leaders from these states want to reverse the cap, and keep these revenues flowing.   In the meanwhile, this change had led to a renewed interest in relocation from high tax states to more tax friendly jurisdictions.  A recent survey showed that a full 53% percent of Californians want to leave the state, with the percentage being as high as 63% among millennials.    New York’s Governor Cuomo has taken to blaming Florida for stealing his high-tax paying residents.  Currently, the state which has lost the most population is New Jersey, with Connecticut, Massachusetts, and of course, New York, all in the top ten.

The Report concludes tomorrow

Illustration: The Boston Tea Party Ship Museum