According to the New York Times, Amtrak's Northeast Corridor needs a $28 billion overhaul, including, most significantly, the replacement tunnel under the Hudson River connecting New York and New Jersey. The significance of the tunnel project is hard to overstate, yet Republicans in Congress--now with White House backing--appear almost gleeful at the prospect of defunding the railroad and crippling the region. Perhaps it is payback for the famous Saul Steinberg's New Yorker cover and all that it represents, but GOP members of Congress from the flyover states are itching to tell Amtrak to go f--k itself.
It is an odd way to say thank you. The Northeast Corridor is an essential transportation artery in one of the two most economically vital regions--along with California--that drive the nation's economy, and in terms of annual contributions to the federal government, it stands alone. Given the disproportionate amount of funding that the region contributes to the federal government, one would not think that supporting badly need capital investment required by that critical rail link would be too much to ask.
|Associated Press: April 17, 2017|
Year in and year out, those states--along with most of their blue state brethren--are net payers of federal taxes while most red states take out more than they pay in. It would be one thing if there was a hint of appreciation from those deep red states to the productive states that provide all that money, but listening to the braying coming from the halls of Congress these days--the hostility to funding Amtrak's Northeast Corridor is just one example--one would think that it was the red states that were supporting the rest of the country.
With Republicans in full control, the Northeast Corridor states are taking it on the chin. It would be one thing if the GOP simply wanted to take the axe to Amtrak--it has been a favored target of budget cutters for decades--but now Republicans are determined to stick it to the blue states on the tax side as well.
Right at the top of the GOP tax reform agenda--and reflected in the Trump tax plan as well--is eliminating the federal deductibility of state and local taxes. This is both a money grab and a political power play. As illustrated in the "tax burden" graphic below, the states that pay the most federal taxes per capita--the Northeast Corridor, Midwest and West Coast--tend to have higher state and local taxes than the lower-tax "taker" states as well. For decades, conservative economists such as Art Laffer, Stephen Moore and Larry Kudlow have argued that it was only a matter of time before those low tax red states became the shining stars of economic growth. Yet, for some reason, despite low taxes--and decades of subsidies from the high tax states that those economists conveniently ignore--the future never comes. Federal taxes paid per capita as shown here are directly tied to income per capita of each state, and--despite the predictions of moralizing tax cutters--those Northeast Corridor states, from Taxachusetts down to Maryland, continue to produce higher real incomes across their populations and subsidize those low tax, conservative shining stars of Florida, Tennessee and North Carolina, and their brethren.
For decades now--as documented by the conservative Tax Foundation--higher performing blue states have seen their money flow to lower performing red states. Yet somehow those red state Republicans get away with saying--as we now hear in the tax reform discussions on Capitol Hill--that the deductibility of state and local taxes represents a subsidy by the low tax to the high tax states. While this might be true in a narrow mathematical sense, whatever benefit that deduction provides to taxpayers in high tax states is a pittance compared to the overwhelming subsidies that flow the other way.
Republican lawmakers don't object to some states subsidizing others--after all, Republicans are more likely to represent taker states than payor states--but they object to subsidizing what they view as morally bad behavior on the part of the blue states: taxing citizens to pay for government. Yet, blue state Democrats can look at the same circumstances and see a very different picture. In their view, those higher taxes that Republicans find objectionable go in large part to fund investments in K-12 and higher education that directly contribute to the higher real incomes and wealth accumulation over time in blue states--which in turn have resulted in the higher per capita federal tax payments that are used in part to subsidize red states. In contrast, in the view of blue state Democrats, red state politicians who prioritize low taxes and suppressing education funding are making policy choices that result in lower levels of education attainment across their communities, and contribute to lower real incomes and less financial security over time.
The destructiveness of the tax cut imperative central to GOP politics is evident within states as well, where--as on the national level--tax revenues are generated disproportionately in the economically dynamic urban centers, while spent to support poorer, rural populations. Colorado, where I live, is just one example of a state where politically opportunistic tax-cut rhetoric has contributed to - rather than helped ameliorate - the "American carnage" that has been visited upon rural and exurban communities. Since a tax-limitation constitutional amendment was approved by voters in 1992, state and local funding of education has been crippled, particularly in rural areas. While urban and suburban communities have approved local tax increases for investments in education and transportation to supplement limited state funding and override constitutional limitations, voters in rural areas have consistently declined such tax increases. Now, as the urban communities are booming, school districts in rural Colorado lack funds to hire teachers or even to remain open more than four days a week. As a result, as we have seen nationally, disparities in economic growth, and family incomes and security, between the economically productive urban and suburban communities and the rural parts of the state have continued to grow.
The GOP has long had a preference for returning programatic control to the states through block grants, and now proposes to block grant Medicaid as part of the Obamacare overhaul. Beyond issues of federal control and uniformity of entitlements across states, to block grant programs is the worst of all possible outcomes from a blue/payor state perspective. After all, to raise revenues as is now done on a progressive, and thus grossly unequal manner, and then distribute the funds back to the states on a per capita basis to be used under locally established guidelines is fundamentally no different than giving Alabama and Mississippi to have taxing power over New York and California. It would be, from a certain historical perspective, as though the Confederacy won the Civil War.
Better instead that we consider--as I am sure the Freedom Caucus and Ted Cruz would appreciate--reverting to the original federalist structure designed by the founders. Instead of having an IRS to raise tax revenue directly from taxpayers across the country under a progressive income tax with a uniform set of rules, we could revert to the Constitutional system of apportionment. Under apportionment, the federal government would determine its budgetary needs, and apportion to each state its obligation based on an equal, per capita amount reflective of the most recent census.
Each state, then, would be responsible in assessing its citizenry to raise its apportionment as it saw fit. California might choose a highly progressive income tax, Texas a flat tax, Florida a sales tax and Wyoming a real estate tax. It would be nobodies business but their own. But when the AP does their analysis, it would show each state making an equal contribution on a per capita basis--$8,943 for argument sake. It would be fair, it would be constitutional, and it would stop the ceaseless hypocrisy of red state politicians yelling about blue state profligacy, while profiting from it at the same time.
To the extent that the emphasis on low taxes has undermined educational attainment in red state America, the anti-tax Reagan Revolution has turned the GOP into a fount of public policy moralism that has undermined the economic success and security of those communities that it represents. In the modern world, where capital flows to those places that offer the greatest opportunity for an economic return, low taxes are not enough; investments in education and human capital matter. Now, more than ever, investments in primary, secondary and higher education have become critical drivers of long-term economic growth at the state level.
In the wake of a presidential election that swung on the devastation wrecked by globalization on less educated populations, one might have imagined that elected officials from those communities would be focused on the urgency of investments in education to support community economic vitality and family financial security. But instead, rather than point to the factors that produce economic success and security over the long term--for individuals, families and communities--we just hear more of the same old, same old, as red state politicians continue to hector blue states about what taxes cost, rather than what they produce.
There is nothing new about the tension of wealth redistribution. The progressive income tax system was premised, among other things, on the notion that the entire nation benefits from improving socio-demographic outcomes of poorer communities. And so it is with the taxation of wealthier states to support less wealthy states--or in the State of Colorado using revenues raised from wealthier Front Range communities to invest in the western slope or eastern plains.
The political challenge of one community vilifying the other--often for political advantage--is that such redistribution--or "progressive taxation"--becomes more difficult to sustain. This is true whether in the traditional vilification of the 1% by Democratic activists, or vilification of high-tax blue states by politicians from red taker states.
The GOP of Mitt Romney was clear in its core principles that the reciprocity for the taxation of the wealthy was the obligation of personal responsibility on the part of the less wealthy. The redistribution of wealth was not, in the GOP view, morally justified for the creation of an entitlement state, but rather an opportunity society. That perspective mirrors those in payor states who do not begrudge the subsidization of taker states, as long as those states are making public policy choices that--in a manner similar to that envisioned by many in the traditional GOP--create opportunities for individuals in those states to improve their circumstances over time. If, instead, those states use the fact of perpetual subsidies from payor states as an opportunity to simply cut taxes and benefit the wealthy in those states rather than assure opportunities for upward mobility for the less well off, the rationale for supporting inter-state transfers of funds withers.
Trumpian politics has blended the abject, tax the risk, taker resentments, with a plutocratic set of policies that benefit the wealthy. By cutting back on the availability of healthcare for the less well off and cutting taxes massively for the wealthiest, Trump's policy prescriptions are beyond anything that Mitt Romney might have been tempted to propose. At the same time, Trump's populist rhetoric drives resentments of rural and exurban supporters toward the urban centers to extremes that the most dedicated socialist or leftist demagogue could hope to match.
The politics of resentment are corrosive to efforts to pursue a society characterized by upward mobility rather than class stratification. The states along Amtrak's Northeast Corridor have done well by their residents over the years. Decade after decade, those states have contributed far more to the federal kitty than they have taken out. Yet for all their success--and the billions of dollars they pour into the pockets of red state taxpayers year after year--they continue to be subject to resentment and derision from Republicans in Congress, who take their money and then tell them to pay for their own railroad.
In thrall of the politics of cutting taxes and their own advancement, those same politicians ignore the critical links between educational attainment and family incomes and financial security, and inhibit their states and local communities from making investments in education that might improve the welfare of those communities that are struggling the most. The irony, as is too often the case, is that the supporters of those politicians are not just the wealthy who want to keep their money, but those who are in most need of education and healthcare funding for them and their families, yet fail to see that their elected leaders are undermining them every step of the way.
Follow David Paul on Twitter @dpaul.
Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.