Those extra funds, squeezed disproportionately from states like California, Maryland, New Jersey, and New York, just suffice to offset the revenue loss from the GOP’s tax cuts to corporations and pass-through businesses.
Yet as aggressively sectional as the GOP plan is, once done, blue-state legislators should hesitate to undo it. If the mortgage interest deduction was ever a good idea, that time passed a long while ago. Canada, without the deduction, actually has a higher home ownership rate than the United States, 67.8 percent vs. 63.7percent. But while the average new home in Canada hovers at about 2,000 square feet, the average new home in the United States is nearing 2,700 square feet. The deduction is advertised as supporting more homeownership; instead, it subsidizes larger homes. How is that a valid policy goal?
The deductibility of state and local taxes is better grounded, but not much. The policy traces back to the very first income tax, imposed during the Civil War. Its authors were impelled more by constitutional than economic concerns. In the modern era, its effects have been dubious. It probably has subsidized blue states to tax and spend more than they otherwise would. Ultra-high state income-tax rates—reaching 13.3 percent in California, 8.82 percent in New York—might trigger more debate, even in those one-party states, if the people paying them felt their full weight. The federal government cushions the pain, especially for those state citizens who might otherwise complain most effectively. (According to the Tax Foundation, 88 percent of the benefit of the deduction flows to taxpayers with incomes over $100,000.) That cushioning, in turn, enables high-tax states to yield to pressure from other local interest groups. One striking example: While the Vera Institute calculates that across the nation it costs an average of $31,000 per year to incarcerate a prisoner, California spends more than $75,000.
Rather than restore these deductions, which have subsidized bad policies, especially in the blue states, the right way to redress Republican sectional chauvinism is by addressing the biggest subsidy to the worst policies of the red states—and especially their profligate spewing of greenhouse gases. Just as the blue states have used the mortgage and state-and-local deductions to offload the cost of their generous state governments, so red states have inflicted on others the climate consequences of their lifestyles.
The map of carbon-intensity by state looks like the map of state and local spending, upside down.
The top five most carbon-efficient jurisdictions are D.C., New York, California, Vermont, and Massachusetts. The five worst: Wyoming, North Dakota, West Virginia, Alaska, and Louisiana.
A carbon tax of $15 per ton would raise something over $700 billion over the next 10 years. That money would a) very neatly balance the 2017 GOP revenue raid on blue-state tax deductions, b) reduce the current carbon-dioxide emissions trajectory by about 10 perent, and c) reduce by half the GOP plan’s estimated increase in the federal debt. The revenues from the tax would help to avert the impending cutbacks in Medicare and other health programs about which the GOP House leadership is now noisily contemplating.