WILFORD: Blue States Look To Counter Gains From Trump Tax Cuts

(Photo by Joshua Lott/Getty Images)

Andrew Wilford National Taxpayers' Union Foundation
Font Size:

The Tax Cuts and Jobs Act (TCJA) provided hundreds of billions of dollars in tax cuts for American taxpayers and businesses. Naturally, some blue states see this as an opportunity to “pick up the slack” by enacting new tax increases.

The prevailing (and misleading) narratives about the president’s tax cut have led to a wave of “tax the rich” fervor, and Democratic state houses are capitalizing. Blue states across the country have begun to reason that with Uncle Sam pulling slightly less out of taxpayers’ pockets, they can grab a bit more.

The most prominent of these cash grabs has occurred in Illinois, where Gov. J.B. Pritzker has proposed a constitutional amendment to allow a graduated income tax. Pritzker’s plan would result in Illinois’s corporate taxes becoming the third-highest in the nation, while its pass-through businesses (mostly small businesses) would be subjected to the fourth-highest rate in the nation.

Part of the reason that Pritzker’s plan has received so much national focus is that the rollout of his plan comes amid charges from the Cook County Inspector General that Pritzker, a billionaire, had toilets pulled out of his mansion in order to qualify for a $331,000 property tax break (which, if nothing else, gifted us with the excellent Chicago Sun-Times headline “Pritzker can’t flush toilet controversy”).

But Pritzker’s lavatorial woes aren’t the only story about tax hikes in blue states around the country. New Mexico has already responded to the TCJA by passing legislation that raises the top individual income tax rate from 4.9 percent to 5.9 percent, while Massachusetts and New Jersey are two states that are currently considering instituting millionaires’ taxes. Washington, a state constitutionally barred from instituting a corporate or individual income tax, is nevertheless considering a new income tax on capital gains, while (laughably) claiming that it isn’t actually an income tax.

Perhaps it was foolish to hope that blue states would support the TCJA’s goal of economic growth through lower taxes, rather than fighting it tooth and nail. Yet in one way we can see the success of the TCJA in these millionaires’ tax proposals: New Jersey Senate President Steve Sweeney, a Democrat, has flipped from supporting a millionaires’ tax to opposing it now that the TCJA capped the deduction for state and local taxes (SALT). New York, which had once seemed certain to make permanent its own millionaires’ tax, is now having second thoughts in the absence of the SALT deduction.

Proponents of this cap argued that the state and local tax deduction had exactly this effect, enabling higher taxes at the state and local level under the logic that the tax cut simply be deducted at the federal level. It’s turning out to be an important bulwark against the blue-state instinct for ever-higher taxes.

Yet blue states should instead realize that their tax-and-spend policies have no good conclusion. Three states considering tax hikes, New Jersey, Connecticut, and Illinois, are in the top four states when it comes to debt-to-income ratio. All the millionaires’ taxes in the world won’t save these states from their own inability to spend within their means.

Andrew Wilford (@PolicyWilford) is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to fiscal policy analysis and education at all levels of government.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.