Sunday, December 05, 2004

Read my lips

In his noble (if quixotic) quest to reform the U.S. tax code, President Bush has run across problem number one: at a point, cutting some taxes requires increasing others. The LA Times reports that one tax reform proposal would eliminate the federal deduction for state and local taxes. This would be a tax increase, plain and simple.

Although the proposal would hurt some taxpayers in nearly every state, it would hit hardest in states with higher-than-average income levels and bigger-than-average state and local tax burdens. High on the list are a number of blue states — those that were carried by Democrat Sen. John F. Kerry in last month's presidential election. Taxpayers in California and New York, for example, which have top state income tax rates of 9.3% and 6.5% respectively, would be highly affected; residents of Florida and Texas, which have no state income taxes, much less so.

With that in mind, is this proposal political? This quote is not encouraging:

Supporters of the change insist the disproportionate effect on blue states is a coincidence, but they acknowledge that the proposal could hurt most in states that voted against Bush. "Let me put it like this: It certainly isn't something that's a discouragement," said one prominent conservative. "Yes, we talked about this. The fact that it hits blue states is not something that's been missed among Republicans."

If this proposal is being seriously floated, there is going to have to be some quid pro quo for taxpayers in the states most affected, perhaps by abolishing the Alternative Minimum Tax. Even so, it will be difficult to justify this measure to the states most affected; the article notes that "California taxpayers...already pay $58 billion a year more to the federal government than they get back in services." Tax reform is a worthwhile endeavor, but I can't imagine this lead turkey of a proposal will fly. If it does, there are going to be a lot of pissed off blue staters. Justly so.


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