Governors of some of the highest taxed states in the country said Monday that they are considering suing to stop the Republican-backed tax reform bill that limits state and local tax deductions.
”We are looking at the legality now. This is double taxation. They are taxing the taxes,” said New York Gov. Andrew Cuomo on a conference call with California Gov. Jerry Brown and New Jersey Gov.-elect Phil Murphy, according to the New York Post.
New York is the highest-taxed state in the country. California is the sixth highest and New Jersey comes in third.
”They’re hurting California, Massachusetts and New York, but they’re also hurting the United States. They’re attacking the vital sinews of the American economy. It’s really stupid,” Brown said, according to the Post. “The right thing for America is to defeat this bill.”
These are odd statements coming from liberal governors whose states impose incredibly high taxes of their own. They also belong to the same Democratic Party that didn't offer a single vote in favor of the GOP bill in the Senate to lower tax rates.
The state and local tax deductions encourage states to raise taxes higher than they normally would without it, leveraging the costs on the federal government. If the costs of higher taxes fall, demand will subsequently rise.
The federal government — unlike most states — can borrow above and beyond revenue, so their subsidization of state governments does little to reduce the size of the federal government.
Most states have formal balanced budget requirements “with some degree of stringency,” according to the National Conference of State Legislatures, which makes shifting the fiscal burden to the federal government that does not have one a politically expedient choice.
“Faced with newly shouldering the entire burden of state and local taxes, taxpayers would markedly increase their opposition to state and local tax hikes,” writes Curtis Dubay, a tax and economic policy research fellow at The Heritage Foundation.
The liberal governors' claims also run counter to their party's mantra of raising taxes on the wealthy to help the poor.
“A little less than 30 percent of Americans claimed the (state and local tax) deduction in 2014, and the beneficiaries tend to be wealthy — the Tax Policy Center estimates that nearly half of its benefits go to households with annual incomes over $200,000,” according to Quartz.