Sooner or later, we have to re­al­ize the ‘rich’ can’t pay for ev­ery­thing

National Post (National Edition) - - ISSUES & IDEAS - Me­gan Mcar­dle

Be­fore the ink was dry on our new tax bill, out­raged blue states were scream­ing about the cap on the de­ductibil­ity of state and lo­cal taxes. Their gov­ern­ments were also fran­ti­cally seek­ing ways around it, and small won­der. For decades, high-tax states with a lot of wealthy res­i­dents en­joyed a hefty sub­sidy from the rest of Amer­ica. Leg­is­la­tors were un­der­stand­ably pan­icked over what vot­ers might do when handed the rest of the bill.

That panic gen­er­ated some des­per­ate ideas. The most pop­u­lar, cur­rently, is al­low­ing peo­ple to con­vert tax pay­ments above the $10,000 cap into a “char­i­ta­ble do­na­tion.” New York, New Jer­sey and Con­necti­cut have al­ready passed laws to al­low this.

While charm­ingly in­no­va­tive, this ap­proach is likely to fall afoul of tax courts, as will the other proposed tac­tics. Blue-state tax­pay­ers may fi­nally have to con­front the full cost of the gov­ern­ment they want. And Democrats will fi­nally have to con­front the ten­sion be­tween what those vot­ers want gov­ern­ment to do and what they’re will­ing to pay for.

That reck­on­ing is long over­due.

Re­mem­ber the Bush tax cuts? A heart­less give­away to the rich that did noth­ing for the mid­dle class, Democrats said. But when their ex­pi­ra­tion date ap­proached, Pres­i­dent Barack Obama called for rais­ing taxes only on fam­i­lies mak­ing more than $250,000 an­nu­ally — that be­ing, ap­par­ently, what it now takes to call your­self “rich.”

This ab­sur­dity is no ac­ci­dent. It’s a func­tion of the ide­o­log­i­cal be­liefs of the Demo­cratic ac­tivist base clash­ing with the ge­o­graphic and de­mo­graphic dis­tri­bu­tion of their vot­ers.

Over the past few decades, the United States has un­der­gone “the Big Sort,” the clump­ing of the elec­torate into de­mo­graph­i­cally, pro­fes­sion­ally and po­lit­i­cally ho­mo­ge­neous neigh­bour­hoods. Clin­ton vot­ers have their Zip codes, and Don­ald Trump vot­ers theirs, and ever more rarely do the twain meet.

Demo­cratic vot­ers have crammed them­selves into a hand­ful of the most eco­nom­i­cally suc­cess­ful coun­ties, heav­ily con­cen­trated in nar­row strips along the coasts. There they’ve formed a coali­tion of af­flu­ent, ed­u­cated pro­fes­sion­als and lower-in­come mi­nori­ties. That coali­tion used its pros­per­ity to fund ex­pen­sive, in­ten­sive state and lo­cal gov­ern­ments.

This fact has been of­ten re­marked, but the im­pli­ca­tions for tax pol­i­tics are rarely noted. Al­ready, just two states, New York and Cal­i­for­nia, to­gether ac­count for more than 20 per cent of fed­eral rev­enue. Mak­ing the gov­ern­ment big­ger, and the tax code more pro­gres­sive, nec­es­sar­ily means mak­ing that skew even worse.

But most of the party’s en­ergy comes from those coastal clus­ters, where leftwing ac­tivists are most nu­mer­ous and pow­er­ful. They want to su­per­size the fed­eral gov­ern­ment just as they’ve done in their home states. But so far, they’ve been un­will­ing to ask their neigh­bours to foot the bill.

Even­tu­ally, they’ll have to, be­cause in def­er­ence to the moder­ate-in­come por­tion of their coali­tion, they want to fi­nance all their plans by tax­ing the rich. Many on the left now call for a Dan­ish-style wel­fare state, but few are calling for Den­mark’s 25 per cent value-added tax on all pur­chases, or their heavy in­come tax on all wages above about $55,000 a year.

No, the money for Amer­i­can-style so­cial democ­racy is all sup­posed to come from the rich. “I’ve been frus­trated with lib­er­als,” says Len Bur­man of the Tax Pol­icy Cen­ter. “They re­ally do just want to raise all the rev­enue from rich peo­ple, and they don’t un­der­stand that that re­ally con­strains what they can do in terms of fi­nanc­ing the safety net.”

Es­pe­cially if you also try to de­fer to the af­flu­ent, ed­u­cated por­tion of your base by con­tin­u­ally redefin­ing “rich” to just north of what mod­er­ately suc­cess­ful blue-state pro­fes­sional cou­ples earn. Yet pol­i­tics re­quire this ratchet. Thanks to the Big Sort, those folks are now con­cen­trated in coastal cities where com­pe­ti­tion from oth­ers like them­selves, and blue-state taxes, raise the cost of liv­ing sky­high. Com­pared with their neigh­bours, they don’t feel es­pe­cially rich; they feel as though they’re strug­gling just to pay for the ba­sics.

Even­tu­ally, how­ever, Democrats are go­ing to have to ei­ther give up their big dreams or hand those vot­ers the bill, be­cause they’re the ones with most of the money. This cre­ates a cer­tain cog­ni­tive dis­so­nance for pro­gres­sives. “There’s a bit­ter­ness that all the tax cuts went to the rich,” says Marc Gold­wein of the Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get, “and not enough of them went to the rich in New York and Cal­i­for­nia and Con­necti­cut.” Until that dis­so­nance is re­solved, Sen. Bernie San­ders will keep promis­ing big new pro­grams with laugh­ably in­ad­e­quate fi­nanc­ing mech­a­nisms — and blue-state leg­is­la­tors will de­nounce in­equal­ity while cook­ing up tax-eva­sion schemes to per­pet­u­ate it.

Blue-state pro­fes­sion­als have en­joyed a dis­pro­por­tion­ate share of the pros­per­ity gains over the past few decades; if they want a big­ger gov­ern­ment, they’ll have to give up those gains to fund it. But thus far, Democrats haven’t man­aged to con­vince these vot­ers that pro­vid­ing lav­ish gov­ern­ment to ev­ery state means that they need to be taxed like a Rock­e­feller — or even like a Dane.

THEY WANT TO SU­PER­SIZE THE FED­ERAL GOV­ERN­MENT.

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