Moonbeam Howls

Governor Moonbeam is howling, and it’s not on account of this week’s supermoon.

“This bill will divide the blue states from the red, the Democrats from the Republicans. It is evil in the extreme,” Gov. Jerry Brown said in a call with reporters.

Governors howl: Why tax plan would hammer blue states, SF Chronicle, 12/5/17

I’m not a fan of the GOP tax bill, but when my governor calls something “evil in the extreme,” my ears perk up.

What’s so evil about the bill? It gets rid of the state income tax deductions, so Californians will have to report higher incomes on their federal returns than citizens of states with lower income tax.

California has much to lose because it relies heavily on the income tax. It has the nation’s highest state income tax rate, 13.3 percent. And the income tax generates 32.2 percent of all state and local tax collections, the fourth highest of any state.

On its face, eliminating arbitrary deductions should be a neutral way to raise taxes – something we need to do at the Federal level unless we drastically cut spending. But blue states like California and New York tend to have higher income taxes, so it’s perceived as warfare.

Policy always involves winners and losers. A complex tax code, replete with special deductions and exceptions, makes any changes to the policy a source of contention and division. Governor Brown is under a lot of pressure because of California’s own long-term financial outlook. Now, increasing the income tax will be an even less popular option for digging out of the fiscal hole. I honestly sympathize–and I’m bummed that I will no longer be able to deduct state income tax–but this what happens when states become overly dependent on the Federal Government. California is a net contributor to other states, tax-wise, but the fact that it is so sensitive to small distributional changes in the tax code makes me think there’s a structural problem, and it’s not the GOP’s fault for exploiting it.

Mark this as another data point for “bad Federalism.”