Presidential hopeful Sen. Kamala Harris has said that “we can change human behavior,” and the “we” in that sentence means “the government.”
One way it does change behavior is through the tax system. As has been pointed out numerous times, if a government wants more of something they will subsidize it (for instance, wind power, electric cars, college education); if they want less of something (or lessen its use) they will tax it (for instance, luxury items, gasoline).
Under the previous law, 100% of state and local taxes were deductible. Now the deduction is capped at $10,000. New York’s Governor Cuomo claims that the limitation on deductibility is the reason that New York suffered a $2.3 billion “shortfall” in revenue in the first month of the year, and he went so far as to converse with President Trump in an effort to have the SALT deduction restored. The Governor doesn’t realize this, but if he blames the loss of revenue on the absence of the ‘subsidy’ he really is blaming his state’s high tax rates, which can’t exist in their present form without the federal tax break.
The governor of New York might not understand the burdens inflicted by high taxes, but two other people understand those burdens very well, and made the news for their response to the burden. Representative Alexandria Ocasio-Cortez might not know the negative impact of high taxes, but her mother, Bianca, does. Bianca made the move from Yorktown Heights, New York to Eustis, Florida, and guess why? In her own words, “I was paying $10,000 a year in real estate taxes up north. I’m paying $600 a year in Florida.”
Free agent outfielder Bryce Harper also knows. He recently signed a 13-year, $330 million contract with the Philadelphia Phillies, and can you guess one of the reasons he signed with the Phillies instead of the Giants or the Dodgers? Pennsylvania will tax that contract at 3.07%. California, home to the Giants and the Dodgers, two teams that made efforts to sign Mr. Harper, would tax that contract at 13.3%. Even someone with the mathematics skills of Bianca Ocasio-Cortez’s daughter should be able to grasp that Mr. Harper would pay a lot of taxes for the privilege of playing in California. Another free agent, Manny Machado, signed a $300 million contract with the San Diego Padres, another California team. Mr. Harper’s agent says that although his client’s contract was for $30 million more, after taxes it will be about $55 million more than Mr. Machado’s. Of course, had taxes been the only motive, Mr. Harper might well have stayed with the Washington Nationals, because the District of Columbia does not tax income of non-residents, and he could have had the $300 million they offered with no local income tax at all.
The high tax states such as New York, New Jersey, Connecticut and Illinois have experienced the loss of many wealthy former residents to states such as Florida, who have moved there (like AOC’s mother) to escape high taxes. Those states are sending millions in pension checks to ex-state workers, now former residents now living in the Sunshine State, and it is costing them plenty, because those states can’t collect income taxes from people who no longer live there. Instead of complaining about losing the federal tax break, maybe Governor Cuomo should consider lowering the tax burden in his own state and thus encourage some of those folks to continue to pay taxes in New York.