Wampum

A return to taxation without representation

Yesterday, the lefty blogosphere was humming over the Bush Administration floating a trial balloon on tax reform; Essentially, more tax cuts for the rich (eliminating taxes of investment income), while removing current deductions which tend to favor the middle class and small business.

Much of the focus was on the proposed elimination of the deduction for medical insurance premiums for businesses. While the implications of this change would be huge, its impact would mostly be non-specific to any region.

The other change floated was the elimination of the deduction for state and local income taxes. My first thoughts when I heard this was, wow, one more way to whack the Blue states. Of course, it took little time to prove my suspicion correct. The following information is from the Tax Policy Center, from the last year data was made available (2001.)

Looking at the top third (n=17), twelve states are stongly Blue, two Purple, and the remaining three are strongly Red. In the bottom third (n=17), including states with no state and local income taxes, five states are Blue, the remaining twelve are Red.

What does this mean for tax purposes? If we take an average single NYC resident who makes 50K, they currently pay about $5000 in state and local taxes. If their federal tax bracket works out to about 25%, removing that deduction would amount to a tax increase of $1,250.

Of course, we all know where those extra taxes will end up, and it's not in NY or any other Blue state.

Update: Eric reminds me that this may shed new light on the term "Redcoat."

Posted by MB Williams at November 19, 2004 09:05 AM | TrackBack