Reihan: Glaeser on the Downside of Devolution

Ed Glaeser has written a fascinating column on the AMT that will take some time to unpack.

I have always been skeptical about localizing responsibility for welfare, because when localities raise taxes to care for the poor, then businesses and the rich just run away. The federal government should fight the tendency of the rich to flee the poor, but when the AMT eliminates the deductibility of state taxes, it just increases the incentive for the prosperous to move to low-tax, low-service states.

This, of course, puts Glaeser at odds with Milton Friedman libertarians who see this incentive as a feature, not a bug, of the devolution or downloading of government functions to the lowest practicable level. One reason conservatives like Ramesh Ponnuru (I think) have called for eliminating the state and local tax deduction is that it would help revive anti-tax politics at the state and local level. My feelings are mixed. I actually agree with Glaeser: better to have a smart, coherent welfare system at the federal or at least state level than a patchwork that encourages the arbitrary and often harmful shifting around of the poor. And yet state and local tax burdens are an imperfect proxy for the quality of social services. Better to upload welfare responsibilities (and, presumably, download others).

There's actually a lot more in this column to discuss, but I'll leave it there for now.