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Tax Cut Opponents Cheat Their Own States


Why are so many senators voting against the economic interests of their constituents on the Bush tax bill? Especially infuriated should be taxpayers living in California, Connecticut, Illinois, Massachusetts, New Jersey, New York or Washington.

Taxpayers in these seven states have the most to gain from a tax cut, according to a new report by the Washington-based and non-partisan Tax Foundation. These states are tax donors: states in which the residents pay more in federal tax dollars than flow back to the state in benefits. They are, in effect, the booby-prize losers in Washington’s income redistribution game. Yet every senator from these states wants to perpetuate this inequity as evidenced by their votes against the Bush tax cut.

It should be self-evident that Congress does not create net wealth with the money it spends and the taxes it collects. The chase for tax dollars is the ultimate zero sum game. Think of the federal government’s taxing-and-spending scheme as a high stakes game of poker with 50 seats at the table. If week after week the same players always won, and the same group of players always lost, then either the game is fixed or there are some pretty rotten poker players. Either way, you would expect the losers to stop coming around-or at least wanting to lower the ante if the opportunity to do so arose.

Strangely enough, that isn’t the way it works in Congress. It turns out that the beggar-thy-neighbor competition for tax dollars among the states has identifiable and consistent victims (see chart). In a rational world, representatives from the states that routinely walk away with fewer poker chips than they started with, would be the most hostile toward big government expansionism, and the most enthusiastic cheerleaders for the Bush tax cut. After all, if you get back only 80 cents on the dollar you pay into Washington, the more the federal government is shrunk, the better off financially your state and your voters are.

Paradoxically, the most pro-tax senators are from the very states that get the rawest deal from Uncle Sam. (Perhaps there is some rough justice here: liberals are paying more for their bonehead policies than the rest of us.)

The Tax Foundation data show that the average resident of Connecticut pays 65% more in federal taxes than the national average. Yet both Senators Chris Dodd (D.) and Joe Lieberman (D.) keep tossing verbal grenades at the “unfairness” of the Bush tax cut and have indignantly vowed to vote against it. When they bluster that the Bush tax plan is “unfairly tilted to the rich,” what they are really saying is that it is unfair that Connecticut workers get more back under the Bush plan than do workers in Idaho.

Of the 20 senators from the states that stand the most to gain from the Bush tax cut, 15 have voted against it.

Many of the senators from the donor states not only oppose the Bush tax cut, but instead advocate $20 billion in federal payments to the state governments in the form of revenue sharing. There are, of course, a multitude of reasons that federal revenue sharing is a ludicrous national policy-most importantly that it violates the basic good government principle that whenever possible the beneficiaries of a government service should be the people who pay for the service. Why should people in Arkansas pay the salaries of the state troopers in Oregon?

Revenue sharing is an especially lousy deal for people who live in donor states, because for every extra dollar Uncle Sam so generously passes on to the states, these taxpayers will eventually pay more than a dollar in extra taxes to fund that generosity.

The major reason to pass the Bush tax cut is, of course, to improve the economy for everyone. Supply-side tax cuts are decidedly a positive sum game-everyone wins. That’s why it is rational for even representatives from states that come out ahead in the static federal income redistribution game to support income tax cuts. But if you believe in a world where the size of the economic pie is always fixed and you also live in a donor state-Democratic senators such as Ted Kennedy (Mass.) and Hillary Clinton (N.Y.) leap to mind-then a vote against the Bush tax cut is an assault against the financial interests of your own voters.

Either these senators are extraordinarily magnanimous or they are very dimwitted. Either way, I would love to play poker with them.

Giving More Than They Receive

State
Per Capita Federal Tax Burden Above National Average
Payments Received Per Dollar of Taxes Paid
Connecticut
65%
67 cents
New Jersey
39%
67 cents
Massachusetts
36%
84 cents
New York
21%
83 cents
Washington
20%
84 cents
New Hampshire
20%
71 cents
Illinois
13%
78 cents
California
12%
82 cents
Colorado
12%
82 cents
Minnesota
7%
81 cents