Robbing Blue States to Pay Red

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Robbing Blue States to Pay Red
Credit Adam McCauley

Much of the debate over the Republican House and Senate tax plans has centered on how they will shift income toward the affluent. But there is a second kind of redistribution in the plans — from Democratic blue states to Republican red states.

Call it the Republican two-step: redistribute upward, then sideways. The biggest beneficiaries are corporations and the rich regardless of where they are. But under the Republican plans, half of these big cuts have to be paid for in the first 10 years (the other half will be added to the national debt, increasing it by $1.5 trillion). And these “pay-fors,” as they’re called, are predominantly aimed at blue states.

As Representative Lee Zeldin, Republican of New York, lamented, the tax bills are “taking money from a state like New York to pay for deeper tax cuts elsewhere.”

Republicans’ red-state bias may seem like just more of the same. After all, their last big legislative drive — the Senate health bill, Graham-Cassidy, which failed in September — also sought a major transfer of resources from blue states that had done a good job expanding health insurance to red states that hadn’t. Senator Rand Paul, Republican of Kentucky, derided that bill as “petty politics” — “just taking the Obamacare money, keeping it and taking it from Democratic states and giving it to Republican states.”

But this nakedly partisan federalism is far from politics as usual. Parties generally try to favor segments of society that support them — and Republicans’ bias toward big business and rich donors certainly fits that pattern. Yet major efforts by a dominant party to significantly redistribute resources toward states that support it are in fact extremely rare. Indeed, one of the last standout examples dates to the decades after the Civil War, when Republicans used the proceeds of high tariffs that aided Northern industry (while hurting the solidly Democratic South) to pay generous pensions to Union veterans concentrated in Republican states.

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Because the Republicans’ most prized constituencies, corporations and the rich, are actually more prevalent in blue states, the overall geographic distribution of the beneficiaries of the current Republican tax bills is mixed. But the growing signs that policies are being written to impose costs on states behind enemy lines are worrisome. A new spoils system based on state partisanship wouldn’t just poison our politics. It could also cripple our economic future.

How do the tax bills favor red over blue states? Most notably, they curtail or eliminate the deductibility of state and local taxes. This is the largest single pay-for in the plans — roughly $1.3 trillion over 10 years in the Senate legislation, which kills the deduction. And a majority of those bearing the cost are tax filers in blue states. Indeed, all of the states that have above-average use of the state and local taxes deduction voted for Hillary Clinton in 2016.

The other major tax break in the cross hairs of House Republicans is the home mortgage interest deduction. As with local taxes, all the states that have an above-average number of homes that would be affected by the deduction cap in the House bill voted for Mrs. Clinton. (The Senate version doesn’t include this provision.)

Some of the pay-fors aimed at blue states look even more gratuitous. The House bill would phase out certain deductions for personal casualty losses — but “grandfathers” victims of Hurricanes Harvey and Irma, though not the horrific California fires.

In sum, Republicans have put the majority of their tax cuts on the nation’s credit card, but they’ve handed most of the rest of the bill to blue states.

To see just how unusual that approach is, think back to 2009, when President Barack Obama briefly had a filibuster-proof Democratic majority in the Senate. Did he use it to shift spending away from red states? Hardly. His signature accomplishment, the Affordable Care Act, was most generous to poorer states, where more people lacked insurance — that is, red states.

This effect was of course blunted by the Supreme Court’s ruling that states could refuse the law’s Medicaid expansion and blunted further by the unwillingness of many red states to accept the expansion’s extremely generous terms. Even so, struggling parts of red America have come to depend heavily on Medicaid and other safety-net programs expanded by Democrats in 2009 and 2010.

Nor is the A.C.A.’s favoring of red states an exception. Compared with blue-state residents, people in red states get back much more in federal spending relative to the federal taxes they pay, mainly because red states are poorer on average. In other words, the Republican elimination of the state and local tax deduction is not fixing an “unfair” situation. It makes the existing blue state disadvantage even larger.

The A.C.A.’s universalistic approach has been the norm for a simple reason: National parties represent coalitions of local representatives that cut across state lines. Despite distinctive regional bases, the two major parties have generally featured a significant degree of geographic diversity, so partisan majorities had no political reason to systematically extract resources from some regions to the benefit of others.

As with other lines of division in American politics, however, the geographic lines have been hardening. Today, blue-state Republicans and red-state Democrats are much less common. As the political scientist David Hopkins has pointed out, the 15 coastal and Northeastern states that now form the Democrats’ geographic stronghold send only two Republicans to the Senate. The trends in the House are similar, with the Republican majority containing fewer and fewer seats in solidly blue states.

But Democrats haven’t sought big transfers toward “their” states. Why are Republicans distinctive? Because of a second crucial feature of our federal system: Parties get rewarded not just for winning over specific people but also for winning in specific places. Because Republicans are stronger in the most sparsely populated areas, they possess a growing structural advantage. This, in turn, increases their incentive and capacity to favor red over blue states.

The Republicans’ advantage stems from two main sources. First, the overrepresentation of less-populous states in the Senate has become more consequential as the population gap between crowded and rural states grows and as rural states become more solidly Republican. Second, the increasing concentration of Democratic voters in urban areas — and Republican gerrymandering to exploit this — means more and more Democratic votes are “wasted” on easy wins. As a consequence, Republicans in both the House and the Senate can lose the national popular vote and still control a majority of seats. Democrats, by contrast, still need to win some red regions of the country.

Of course, the remaining Republican legislators in blue states face cross-pressures. But many come from deep-red areas and feel more vulnerable to primary challenges than to a general election opponent. They also fear the wrath of Republicans’ increasingly assertive big-money donors, who often reside outside a politician’s district. As Chris Collins, another New York Republican who is conflicted about the tax bills, admitted, “My donors are basically saying, ‘Get it done or don’t ever call me again.’ ”

Republican leaders are betting that enough blue-state Republicans will put loyalty to party ahead of the prosperity of their state — or at least recognize that the first part of the Republican two-step (big tax cuts for rich people in blue as well as red states) may redound to their benefit even if the second (pay-fors aimed at blue states) doesn’t.

But if their bet pays off, it isn’t just blue states that will suffer. Red America may hold the key to Republicans’ control of government, but blue America holds many of the keys to our nation’s economic future. Indeed, among the blue-state pay-fors, the most troubling may be those that will bleed institutions of higher education, particularly in the House bill. In their zeal to extract revenues from blue states, Republicans are threatening our nation’s ability to excel in a global knowledge economy.

The moral of Civil War pensions is cautionary. Pensions for Union veterans devolved into a spectacularly corrupt system that undermined political support for much-needed universal social policies. High tariffs outlived their utility and helped incite a global trade war in the 1930s. It took the Great Depression to unleash new social programs and major federal investment in the South. Republicans should think twice before succumbing to the dangerous appeal of territorial tribalism again.

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