Politics, Moderate



Republicans have a plan to hurt blue states. It could backfire.

Catherine Rampell on

States could try to shift more of their taxes away from income taxes and toward property taxes, which currently comprise just 1 percent of states' own general source revenues. (Municipalities are much more reliant on property taxes.) But states don't have the administrative capabilities in place to easily do that, says Tax Policy Center senior fellow Tracy Gordon.

What's likely to happen instead?

Well, as the marginal cost of state and local income taxes rises, higher-income residents may decide to leave for greener (i.e., lower-tax) pastures. Or states may cut taxes to try to keep them around. Both possibilities would worsen states' fiscal imbalances and expedite the crises that are rapidly approaching.

It's not clear whether any of these risks are on the GOP leadership's radar. But if Republicans are hoping for some blue-state fiscal chaos, they shouldn't be, and not just because there are dozens of Republican congressional districts in Democratic states.

Democratic states, after all, aren't the only ones with enormous unfunded pension liabilities. If one high-tax blue state goes belly-up, investors could easily get spooked, driving up borrowing costs elsewhere, too. Fiscal fires can burn across state lines. So keep that schadenfreude in check.



Catherine Rampell's email address is crampell@washpost.com. Follow her on Twitter, @crampell.

(c) 2017, Washington Post Writers Group




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