Robbing Blue States to Pay Red
Because the Republicans’ most prized constituencies, corporations and the rich, are actually more prevalent in blue states, the overall geographic distribution of the beneficiaries of the current Republican tax bills is mixed. But the growing signs that policies are being written to impose costs on states behind enemy lines are worrisome. A new spoils system based on state partisanship wouldn’t just poison our politics. It could also cripple our economic future.
How do the tax bills favor red over blue states? Most notably, they curtail or eliminate the deductibility of state and local taxes. This is the largest single pay-for in the plans — roughly $1.3 trillion over 10 years in the Senate legislation, which kills the deduction. And a majority of those bearing the cost are tax filers in blue states. Indeed, all of the states that have above-average use of the state and local taxes deduction voted for Hillary Clinton in 2016.
The other major tax break in the cross hairs of House Republicans is the home mortgage interest deduction. As with local taxes, all the states that have an above-average number of homes that would be affected by the deduction cap in the House bill voted for Mrs. Clinton. (The Senate version doesn’t include this provision.)
Some of the pay-fors aimed at blue states look even more gratuitous. The House bill would phase out certain deductions for personal casualty losses — but “grandfathers” victims of Hurricanes Harvey and Irma, though not the horrific California fires.
In sum, Republicans have put the majority of their tax cuts on the nation’s credit card, but they’ve handed most of the rest of the bill to blue states.
To see just how unusual that approach is, think back to 2009, when President Barack Obama briefly had a filibuster-proof Democratic majority in the Senate. Did he use it to shift spending away from red states? Hardly. His signature accomplishment, the Affordable Care Act, was most generous to poorer states, where more people lacked insurance — that is, red states.
This effect was of course blunted by the Supreme Court’s ruling that states could refuse the law’s Medicaid expansion and blunted further by the unwillingness of many red states to accept the expansion’s extremely generous terms. Even so, struggling parts of red America have come to depend heavily on Medicaid and other safety-net programs expanded by Democrats in 2009 and 2010.