The Great Divide - The American Spectator | USA News and Politics
The Great Divide

If you want your federal taxes reduced you will have to wait until 2017. If you want your state and local taxes reduced, move—now. Before President Obama lied about allowing you to keep your doctor and health insurance, he told his most famous fib: promising that he would never raise any form of taxes on anyone who earned less than $250,000. On February 4, 2009, only 16 days after his inauguration, he raised taxes on tobacco users, whose average income is less than $40,000. Obama signed the Affordable Care Act, which created 20 different new taxes. And on January 1, 2013, the president refused to extend all of George W. Bush’s temporary tax cuts, including the Alternative Minimum Tax (AMT) patch. Eighty-five of the cuts, measured by dollar value, were were made permanent, but 15 percent lapsed.

Today the House forestalls any effort to hike taxes, while the Democrat-controlled Senate and White House guarantee that GOP plans for tax reform—cutting the top rates for individuals and businesses to 25 percent, instituting a territorial tax system, allowing the expensing of business investment—are on ice until 2017.

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But in the 57 (or so) states, tax changes for good or evil are very much the order of the day. Over the last two years, of the 25 states where Republicans control the governor’s mansion and both chambers of the state legislature, 19 have cut taxes. (Five Republican states have announced the goal of abolishing their state income taxes completely.) Of the 13 states where Democrats are in total control, 10 have raised taxes.

When Republicans won big in the 2010 races, they earned the right to unilaterally draw both the congressional and state legislative districts in 26 states. Democrats had similar complete control over redistricting in only 11 states. As one might imagine, Democrats redistricted California and Illinois to ensure that they will control those state legislatures for a full decade. Republicans returned the favor in Texas, Ohio, Michigan, Wisconsin, Pennsylvania, and Florida. 

Thanks to this redistricting, the nation is becoming more polarized. Red states will tend to say red and continue cutting taxes through 2023 and blue states will stay blue and continue raising taxes. And while you might not be able to change your state’s tax policy by voting, you can lower your own tax burden by moving.

Democrat-controlled states have decided to raise taxes in order to avoid cutting state employee pay and reforming benefit and pension schemes that dwarf those available in the private sector. California Democrats placed on the 2012 ballot a series of tax hikes that passed 54 percent to 46 percent. Californians thus increased their top income tax rates from 10.3 percent to 13.3 percent and their sales tax from 7.25 percent to 7.50 percent, amounting to an additional $6 billion in 2013. The unfunded pension liability for California’s state pension system is $485 billion. Unchanged. Unreformed. Soon taxes will rise again.

Minnesota Democrats won control of both houses of the legislature in 2012 and, with the help of Governor Mark Dayton, raised taxes by $2 billion. No reforms. Unfunded pension liabilities—to be paid with higher taxes yet in the future—stand at $16.7 billion and counting. 

Illinois raised income taxes from 3 percent to 5 percent and increased the state corporate tax. Spending continued to rise. The unfunded pension liability stands at $100 billion. Future tax hikes will be demanded to fill that gap.

Massachusetts Governor Deval Patrick raised the gas tax by three cents per gallon, and the cigarette tax was bumped up to $2.51 a pack, for a total hike of $500 million this fiscal year.

In Maryland, Governor Martin O’Malley, aided by what looks like a permanent Democratic legislative majority, has raised taxes on incomes, mortgages, death certificates, sales, car registrations, and offshore wind energy. He has added a “flush tax” and a millionaires tax targeting those earning more than $100,000 per year. He has even implemented a “rain tax”—a stormwater management fee.

Since 2010 almost every Republican-held state has cut taxes. (The sad exception was Virginia, where Governor Bob McDonnell pushed for and won with mostly Democrat backing a $5.9 billion tax “for transportation.”)

North Carolina Senate President Pro Tempore Phil Berger and Senate Finance Committee Co-Chairman Bob Rucho have announced a drive to phase out the state’s personal and business income taxes. Phase one passed in 2013; tax rates will fall from 7.75 percent to 5.8 percent in 2014 and to 5.75 percent in 2015. As revenues increase, the corporate tax rate will fall to 3 percent.

Kansas Governor Sam Brownback has also announced a goal of zero income tax. Step one in 2012 was to cut the personal rate from 6.45 percent to 4.9 percent and eliminate in its entirety the double taxation of S-corporation and LLC income.

On the very evening Brownback was giving his State of the State address on progress toward income tax abolition, Governor Dave Heinemann of Nebraska announced the same goal for his state. Heinemann is expected to push major tax reform in Nebraska this coming legislative session.

Missouri businessman and tax advocate Rex Sinquefield has launched a campaign for his state to follow Kansas’s lead. The GOP holds supermajorities in the Missouri House and Senate, which passed income tax cuts of $700 million. Democrat governor Jay Nixon vetoed the cuts. Fifteen Republicans betrayed their principles and a move to override the veto failed. It is widely believed that a similar tax cut will be voted through in January and that those state legislators will either support it or face recall or defeat in 2014.

Louisiana Governor Bobby Jindal presented a plan to the legislature in 2013 to zero out his state’s income tax.

Tennessee already has no income tax, but it does tax dividend income. State Senator Mark Green has introduced legislation expected to pass in 2014 to end such taxation and remove this embarrassing asterisk.

Oklahoma Governor Mary Fallin and state legislative leaders have talked about the idea of abolishing Oklahoma’s income tax but so far have only managed a few minor tax cuts, including one that shaves a meager half percent off the state income tax.

Arizona’s outgoing governor, Jan Brewer, pushed for a $1 billion a year tax hike for three years starting in 2010, but 2014 gubernatorial candidate and now Secretary of State Doug Ducey led the winning campaign to kill this “temporary tax.” The Arizona GOP also cut corporate income taxes, business property taxes, and individual income taxes on capital gains. State Senator (and 2014 candidate for governor) Al Melvin has called for phasing out the state income tax in the next four to eight years.

For the next 10 years, at least until the redistricting is completed once again, Republican states will move toward lower taxation and Democrat states will move in the opposite direction.

Which direction will you move? 

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