My first twitter war

I got into my first twitter war with Dean Baker today, and it was all over the state and local tax deduction.  As Christopher Pulliam and Richard Reeves from Brookings pointed out in their recent report, the deduction is just a boon to the rich (which it is), but Dean Baker responded that raising taxes on the rich in high tax states might cause them to move to lower tax states.

To be honest, for a long time, I thought the deduction was potentially beneficial since it offsets some of the taxes paid at the state level, making it easier for them to raise taxes and provide more funding for valuable programs.  Practically, however, whenever state level politicians start arguing over higher taxes, they basically never bring up the fact that raising taxes on the rich will be partially offset through lower federal taxes because of the state and local tax deduction. This could be an important subsidy for higher state income taxes, but its mechanism is so complex that no one really picks up on it enough to have an impact on state policy.  Ultimately, then I had to reject this argument for the state and local tax deduction.

Dean Baker offers a different argument for the state and local tax deduction in that it discourages high income taxpayers from moving to low tax states.  You hear this argument all the time from conservatives whenever someone proposes higher taxes at the state level.  I remember back when Jesse Ventura was governor of MN, and he made a visit to some MN transplants in Florida, and they all said they moved there because of our horribly high tax rates, so Jesse felt the need to propose a big tax cut in the state income tax.  Of course, Minnesota's extremely difficult winters had nothing to do with their decision to move to Florida, and they only decided to move their *after* they had retired, but this argument keeps coming up all the time when discussing state taxes, and I was a little surprised to hear it from Dean Baker.  

As it turns out, Michael Mazerov at CBPP did an excellent job responding to this argument back in 2014, so I posted a link to his report in a reply tweet.  Dean Baker said that this report didn't refute his argument since it didn't address *changes* in the top income tax rate.  I pointed out that the CBPP report (in Appendix 2) cited two studies that found a negligible impact on interstate migration when NJ and CA raised income tax rates on the wealthy in their state.  He replied that these were only short term studies and you wouldn't expect people to move in only a year.  I responded that one of the studies looked at migration patters 4 years before and 4 years after, so you would expect to see any impact show up in the data by that time.  That's where things currently stand. 

Now I understand that the Democrats face a political problem.  The $10,000 limit on the state and local tax deduction does predominantly impact people living in blue states, and politicians do need to be responsive to their constituents.  This is actually less of a problem after the big Trump tax cut, because that bill almost doubled the standard deduction, which means that now only about 10% of the population itemize their deductions now.  True, these families in the top 10% are now key swing suburban voters, and Democrats need every vote they can get right now, but eventually, down the road, when our democracy is not at stake, I think it does make sense to get rid of the state and local tax deduction.  It does primarily impact the rich, it doesn't really encourage more state spending, and the money raised could be used to directly pay for valuable programs either at the state or federal level.  Pointing out these arguments is a valuable service that Christopher Pulliam and Richard Reeves at Brookings provided for us, and I thought that was worth highlighting.