WSJ oped: The Blue-State Tax Burden

I am sure that there are some flaws in the "rationale" here, but cannot put my finger on them. - QE

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The Wall Street Journal

December 13, 2004

COMMENTARY

The Blue-State Tax Burden

By MARC SUMERLIN
December 13, 2004; Page A16

Of all the Democratic complaints about the presidential election, the most interesting and ironic came from Lawrence O'Donnell, a leading party strategist and former aide to Sen. Pat Moynihan. He complained on MSNBC that, "The segment of the country that pays for the federal government is now being governed by the people who don't pay for the federal government." Mr. O'Donnell added for good measure, "Ninety percent of the red states are welfare client states of the federal government."

(snip)

Consider deep blue Connecticut and vivid red Oklahoma. Both have roughly the same number of people, five Congressmen and seven electoral votes. Last year, 1.66 million Connecticut tax filers paid $19.1 billion in personal taxes on $107 billion of adjusted gross income. That makes for an average tax rate of 17.9% in Connecticut. In the same year, 1.5 million Oklahoma tax filers paid $6.6 billion in personal taxes on $54 billion in adjusted gross income; an average tax rate of 12.2%.

(snip)

The cost of living in Connecticut is much higher than in Oklahoma. One index of cost of living differentials shows that an income of $130,000 in Connecticut is equivalent to $90,000 in Oklahoma. That means families at those incomes are equally well-off and under standard tax theories about fairness should pay the same share of their income in taxes. Currently, a family of four making $130,000 pays $20,450 in income taxes, or 15.7%, while the family making $90,000 pays $8,450, or 9.4%. If both families were taxed at the Oklahoma rate, the Connecticut family would pay $8,200 less. What to do? One obvious point is that if you have a federal income tax, you can't have tax rates that vary by state. However, this leads inescapably to the mathematical fact that flat taxes are not only simpler by most measures, they are also the only way to deal with the type of unfairness that Mr. O'Donnell complains about. Flatter is fairer.

(snip)

But from an employer's point of view, it is quite difficult to justify these kinds of differentials, particularly when they are exacerbated by tax differences. As higher-wage jobs leave the overtaxed, higher-cost areas, both the local economy and the state's tax base decline. This often creates a need to raise state and local taxes still further, making those states and regions still less competitive.

The result is that even though most of the taxes are still paid in high-cost states as a legacy of their industrial past, most of the economic growth in the U.S. has taken place in lower-cost, lower-tax states. For example, between 1977 and 2001, real gross state product in New York rose 2.6% annually, 10% below the national average; but it rose 3.6% per year in Texas, 20% faster than the rest. Importantly, this occurred over a period of time in which the real price of oil fell sharply, much to the disadvantage of Texas; it responded by diversifying its industrial base by offering an attractive business environment.

(snip)

Mr. Sumerlin is managing director of The Lindsey Group.

URL for this article:
http://online.wsj.com/article/0,,SB110290129211398078,00.html

I can tell you, as a Calif. resident, we are GAGGING from the high cost of living. I enjoy the lifestyle here and the perks that (USED to) come from paying more so I accept it................HOWEVER, I'm FURIOUS that other states DON'T PAY THEIR FAIR SHARE ALSO.

People want more services, social programs, helps of all kinds...THEN PONY UP THE GDamned TAXES FOR IT!! I'm unwilling to pay for other taxfree state's crises and perks! :grr:

.....I wonder if you know that Oregon residents are suffering from an increase in cost of living because of Californians? This is just a gentle reminder that our energy generated right here at home was largely sold to California over the past few years, making our own energy costs go up 30+ percent. And as increasing numbers of Californians have fled their state for our greener pastures, our real estate prices have gone sky high and our proud culture diluted by people who really have little sensitivity for things not Californian.

So I guess none of us are escaping the consequences of what others do or don't do. I understand your frustrations, but Californians made their own bed, really. It used to be a beautiful, beautiful place.

up costs in other states...especially in housing. It's a conundrum alright, but I still think every state should pay it's own way.

We SHOULD share/sell resources between us but paying it forward to support federal government ought to be the burden we all share equally. I'm surprised to learn how many states don't do this. I just assumed........... ass u me (eek)=o/

I could be wrong, but I think I heard that Florida for example doesn't have any resources to help itself out of Hurricane crises...the rest of us pay for that. I like to help, but geez..

As for energy generation, I think we should generate our own...agreed. Why don't we generate enough energy for ourselves? I don't know; enviros? government culpability? Whatever it is I'm against it. Sharing resources in emergencies is okay, but other than that...
I'm really sorry that Californians moving to other states is causing the costs to go up, get this though, the costs here HAVEN'T GONE DOWN FOR THEIR LEAVING...Yikes!

BTW: What did Oregon do with the money they got from selling the energy? Just curious.~~Peace~~

What did Oregon do with the money they got from selling the energy? Just curious

The profit went into the pockets of the officers and shareholders of Portland General Electric -- which had been bought out by Enron. The company looted the pension plan, too. Oregonians were robbed. Californians were, too, by Enron. But California had to import energy generated in Oregon.

to thatstory? Why our state didn't follow up on that scandal will forever tick me off.

Yes, I've heard about Peak Oil. A limitless supply we don't have, indeed. The Natural Gas suppy I'm not sure about; However we could be using hydro electric in the interim to other sources of power...IF we'd just build some dams. Then, of course there's that nasty old Nuclear power...but what would we do with the waste? Yikes..what a mess.

One would have thunk that our "leaders" could have forseen such demands and depletions a long time ago and set upon new sources of energy by this time!

Peace from California :hi:

The reason California didn't have enough energy, IIRC, was that there aren't enough refineries -- none have been built to handle the load. That ain't gonna get better. Refineries aren't being built because we are on the downside of oil in the world. Google the words "peak oil" and you'll see the future we face.

It is not as if the power of industry and politics are leaving NY and the other Northeast and West Coast in droves for cheaper labor and cheaper cost of living. And, I suspect, quality of education.

The Strib the other day reported how competitive the State of Minnesota is, even though it is perceived to be a high tax state. Certainly judging by the increasing congestion on the roads, if there is any migration it is inward.

His data is cherry picked to support his hypothesis. For instance, why does he pick only two small states? Why not compare all the states?

Besides, who has the patience to slog through all that arithmetic? I doubt if anyone at FreeRepublic would.

This bullshiter's cost of living argument cuts both ways. To be fair, Connecticut should get more federal benefits than Oklahoma does because its higher cost of living means it also pays MORE TAXES than Oklahoma.

But no! Oklahoma gets just as much (if not more) federal benefits per capita, even though Connecticut contributes more $ to the federal pie.

O'Donnell's point wasn't the inequity of the tax system, as I am sure that he is in favor of a progressive tax, or variances in the regional cost of living, it was in the distribution of benefits from the federal government. Where the comparison between Oklahoma and Connecticut should have been a comparison of how much money each state receives from the Federal Government to how much they pay in federal taxes annually. I don't have the figures or the time to research them now, but I am 100% percent positive that Oklahoma pays less in Federal taxes than Connecticut and receives more money from the Federal Government.

As a Connecticut resident, I know that we historically receive the least, or close to the least, amount of per capita money from the federal government. Amazing that Connecticut also has (generally) very good public schools.