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GOP Tax Plan Punishes Blue States

Jacob Wohl

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The GOP tax plan that was rolled out this week is expected to slow revenue streams for states with high state income tax. The removal of the state income tax deduction from the tax code will end the long-time model of low tax states subsidizing deductions from high tax states.

Reuter Reports Democratic-leaning states are set to bankroll a big chunk of the tax cuts unveiled in a Republican tax plan on Thursday, as the plan slashes deductions used the most by residents of states that voted against Donald Trump in the 2016 elections.

The bill, introduced by the U.S. House of Representatives Committee on Ways and Means on Thursday, took aim at state and local tax deductions as one part of its plan to pay for reductions in taxes elsewhere. Overall, the plan would reduce federal revenues by roughly $1.5 trillion over 10 years.

The bill eliminates the most widely-used deduction – income tax – and caps property tax deductions, the second most-used, at $10,000. State and local deductions are used largely by high-tax states that tend to vote Democratic in presidential elections and local officials say the tax bill appeared to divide its benefits and burdens along partisan lines.

“I do think this has been developed in a way that looks at who were the prevailing forces in the presidential election and who were not,” Kevin Sullivan, Connecticut’s Commissioner of Revenue Services, told Reuters.

Connecticut is one of several high-tax Democratic states where, local officials say, middle-class households will end up paying more taxes under the Republican plan.

Among those potentially hardest-hit are California and New York with state income tax rates of 13.3 percent – the nation’s highest – and 8.82 percent respectively, according to a recent report by the Tax Foundation.

That group also includes New Jersey, Minnesota and Oregon – all of which have voted for Trump’s Democratic rival Hillary Clinton in the 2016 election.

“By eliminating or rolling back state and local tax deductibility, Washington is sending a death blow to New York’s middle class families and our economy,” New York Governor Andrew Cuomo, a Democrat and one of the most outspoken opponents of the bill, wrote in a letter to Trump this week. “It’s clear this is a hostile political act aimed at the economic heart of New York.”

To be sure, some Republican legislators from high-tax states, including Representative Lee Zeldin, of New York, have opposed the bill.

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Jacob Wohl is the CEO and Head of Fixed Income and Interest Rates for Montgomery Assets, a proprietary trading and asset management firm based in Los Angeles, CA. Jacob Wohl is the host of the Offended America Podcast

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