Jeb Bush unveiled his tax plan this week. Bush is following several other Republican presidential contenders in offering such a plan, and his is similar to theirs in some predictable and — to be clear — understandable ways. The broad strokes of the plan are described well in this post by Dylan Matthews, but I want to focus on one feature that stuck out to me: The plan will raise taxes more on people who live in states that Obama won in 2012 than on those in states that Romney did.
This is because Bush’s proposal eliminates the federal deduction for state and local taxes. The following figure illustrates the relationship between the average size of this deduction claimed in 2012 and the share of the popular vote won by Obama in that state in the 2012 presidential election. (The deductions data is available here from the nonpartisan Tax Policy Center, and the election data is drawn from this Federal Election Commission report.)
The figure clearly indicates that the people who stand to lose the most from Bush’s proposal to eliminate the state and local tax deduction are those who live in states in which more people voted for Obama in 2012. Obviously this is because the states that voted for Obama in 2012 are also generally those with higher state (mostly income) taxes and/or local (usually property) taxes. You can draw from this correlation what you will, and at your own peril.
Still, all that said, at least three important questions emerge.
Is this just partisan sniping or revenge?
No. It is clear that, politically speaking at least, Bush needs to favor cutting federal taxes. It is also clear that in a time of deficits, he must find a way to pay for the cuts. Thus, any "tax cut" must be at least partially redistributional. Any feasible tax cut has to raise taxes on some people. The state and local tax deduction is a huge cost to the federal government. (For more on how expensive this "tax expenditure" is, see the nonpartisan Committee for a Responsible Federal Budget’s very thorough discussion here.) So if the goal is to "cut taxes" without either cutting spending or raising the deficit, then some taxes have to go up. (Note: The plan is nonetheless projected to increase the deficit.)
Is this smart politics?
Probably. The simple fact about presidential elections is that on the whole, the party that a "state supported" last time will probably be the party the "state supports" this time. In other words, partisanship, ideology, and other factors that are important to people when deciding whom to vote for are pretty stable. While some people are "independents" in the sense of being close to equally likely to vote for either party's presidential candidate, it is nonetheless the case that on most days of the week, most people will vote tomorrow like they did yesterday.
This means that on the margin, Bush is not really competing for Californians’ or New Yorkers’ votes in the general election. The figure clarifies that these are among the two most penalized by the proposal (upper right of the figure). Rather, at this point, Bush is competing for the GOP nomination. He needs to win "swing states," so let’s consider where the states closest to 50 percent in the 2012 general election stand. The three closest are North Carolina, Ohio, and Florida. As displayed in the figure, Ohio and Florida gain relative to the expected "partisan deduction" (they lie below the line in the figure). That’s not a real baseline, but it does indicate that both states — particularly given their populations — are getting off quite lightly relative to their peers in this element of Bush’s proposal. If Bush happened to win these states’ primaries, it would make a very solid case that he should be the GOP nominee.
Is eliminating this deduction a good policy idea?
Umm ... depends? On the one hand, the federal tax deduction partially subsidizes local and government spending. On the other hand, the federal tax deduction partially subsidizes the provision of services (such as education, police forces, fire departments, trash pickup, etc.) that the federal government generally does not provide. Do state and local governments overtax their citizens? Maybe, maybe not. But from a philosophical perspective, it is rich to insist that local control of issues such as abortion and same-sex marriage should be considered sacrosanct while simultaneously (though implicitly) insisting that fiscal policy should be controlled by politicians in DC.
In the end, this is just a proposal. It won’t pass in this form (or, I’d bet, in any form close to this). But it is a truly clever political attempt to solve the politically induced fiscal problems of our tax code.
The tax code is too complicated. Forget the estate tax, which almost nobody pays: Fewer than 1 percent of estates are subject to it.
Many of the targets of Bush's plan, such as the alternative minimum tax, the state and local tax deduction, and the mortgage interest deduction, should be eliminated. But while Bush's tax plan paves part of the way toward the goal of a more efficient revenue code, its path so far is at least consistent with partisan intentions.