Apparently my googling skills aren’t the best.
I’m looking for citable information on how the talking point of blue states railroading higher taxes has played out over the last several decades. Has there really been that huge of a disparity? Have the rates risen at that faster of a pace? Have the higher rates in blue states had notable impacts, positive or negative? Thanks
Sounds like you/they are talking about income taxes, when multiple other taxes come in. Texas and New Hampshire have zero income taxes, but high property taxes. Tennessee has no income tax, high sales tax. And of course:
Tax bracket/marginal tax rate = worthless
Effective tax rate = good, but only income tax usually
Tax burden = everything, percent of income paid to tax
Then of course red/blue state is a undefined/poor metric. It usually means the electoral vote in the last election, which is a poor measure. Legislature writes the laws anyway, but these change over tiime, which election? And what to do with that weirdo Alaska. A better way also could be to use only extremely stable red/blue states and ignore purple.
“Notable impacts” is subjective, and probably not FQ. Just from my look though, “it depends.” Some states in both categories do well with their taxe revenue and some poorly, you decide which.
For one analysis:
Yes
I recall some article years ago about “Tax-a-chusetts” that said richer Boston area residents were moving to less tax-happy New Hampshire, and to a lesser extent Vermont. But of course, then they wanted services that were similar to Massachusetts, pressuring the local government(s) so taxes were climbing toward Boston levels.
As someone who did exactly that, though not for the reasons of taxation, I don’t think so. As someone pointed out, NH already has very high property taxes (I was paying nearly $9,000 per year on a house valued at $350,000). Also, southern NH is a commuter zone for jobs in the Boston area, and those people (I was one) pay the mass income tax AND the high NH property taxes. There are a lot more, better paying jobs on the Mass side of the border.
I know this is FQ, but anecdotally I don’t recall a lot of arguing to increase services in the town where I live.
[Moderating]
As @thelurkinghorror points out, this part of the question is not factual, and would be better suited for Great Debates. Feel free to discuss the other aspects, however.
One significant change happened during the Trump administration when they took away the deduction for state taxes. This had the effect of raising taxes on blue states because blue states tend to have higher state taxes. One thing said at the time was that blue states take care of more needs than red states do, so the net effect of the change was to increase the subsidy of red states by blue states.
Unless I misunderstand, the tax changes did not affect the deductibility of income taxes. It a) raised the standard deduction, people who take the standard deduction don’t need to account for it, and b) lowered the SALT cap, so income tax was deductible, just only up to a point ($10,000). This affects people in high tax states more, but only higher income people. Quick calculation using CA FTB’s tool is about $140,000 (MAGI, so gross income higher).
Ignorance fought! Thanks for fixing that up! And sorry for getting it wrong.
There was no cap on the deductibility of SALT taxes prior to 2018
Really - the top state income tax for almost everyone is 7% or so??
I don’t understand what you mean. Their tool to calculate taxes is just over $10,000 at $140,000, so you can only deduct up to that amount federally, whether you paid $10,001 or $10,000,001
The top tax bracket is about 13.3% of income over $1,000,000. Everything under that is at lower rates.
One caveat is the cap was before Biden and their tool is on 2021 rates, so it’s “about” 140k.
That’s what I mean - unless you are one of the lucky few who make over $140,000 the highest rate you will pay is 1/14th of your income (to the state)?
Keep in mind the SALT cap doesn’t increase for married filing jointly. It also applies to property taxes. The numbers listed above for MA and CA apply to single filers who rent.
Right. I pay more than $10k in property taxes alone, and that’s not at all uncommon in my area. And, I play income taxes as well, of course.
Average home price in DC is $625k. Assuming assessments have kept up (not a safe assumption), that’s a $5300 property tax bill. Married couple making $50k each will hit the cap.
Although whether they’d be itemizing anyway is a separate calculation.
To the OP, state income tax brackets are here:
The issue with looking at just income tax has already been addressed.
Also, states handle local spending differently. E.g. money effectively earmarked for schools may be collected by the state and distributed back to local districts. Or it may be collected directly by the district/city/county. So one state might show a higher state tax burden and another a local tax burden.
Another oddball factor for Iowa, at least, is that they allow residents to deduct their federal income taxes from their state income tax liability, which makes the effective tax rate considerably less than the posted rate. I think that might be reflected in the Wallet Hub link further up, but this Tax Foundation link simply lists Iowa’s top income tax rate as over 8%. While that’s true, as far as it goes, no Iowan actually pays that much, since they can deduct their federal taxes from that.
Right. They have that footnoted:
(b) These states allow some or all of federal income tax paid to be deducted from state taxable income.
But I’m glad you pointed that out because a casual glance suggests comparisons are easier than they actually are.
Yep. Their graphic shows Iowa a darker red with that 8+% rate, yet the actual effective rate isn’t that high, and most people checking that graphic won’t look for a footnote (I know I didn’t).
State legislators have been discussing eliminating federal deductibility for years, with the argument being (basically) businesses considering moving to Iowa can’t do basic math to actually compare effective tax rates between states (I do admit there’s a complication factor involved here).