A Tax Hike Resentment-Minded Conservatives Can Love

A blog about business and economics.
Dec. 5 2012 2:37 PM

A Tax Hike Resentment-Minded Conservatives Can Love

Jim Geraghty at National Review says that if taxes must be raised, lets structure the tax hikes to impose maximum burden on "blue" states. Specifically, he wants to leave the capital gains tax rate in place, raise income taxes on the very top tax bracket, eliminate or scale-back the mortgage interest tax deduction, and eliminate or scale-back the deduction for state and local taxes.

The higher rates are, of course, already part of Barack Obama's plan. And essentially any plan to tax the rich has the feature of disproportionately taxing blue states in order to subsidize red ones. That's the general structure of the American fiscal union—high productivity states tend to vote for Democrats and subsidize the low productivity states where most people vote Republican. But Geraghty is right that the state and local tax deduction primarily benefits residents of blue states since blue states have high taxes, and so does the mortgage interest tax deduction because blue states have expensive houses.

Advertisement

I think this is a fine idea, but I'm especially enthusiastic about the mortgage part. Suppose homeowners in expensive coastal cities couldn't deduct their mortgage interest, what would happen? Well, what would happen is that prices would fall. But nothing more dramatic than that. All the deduction does is encourage further bidding up of the price. In a normal market, that bidding up of the price might lead to additional construction. But the main reason those blue metro areas have such expensive houses is that zoning doesn't allow demand to be matched with supply. No matter how expensive Georgetown or Harvard Square or Park Avenue gets they're not demolishing the existing structures and replacing them with much larger ones. So you'd get some extra tax revenue this way with no real change in the amount of underlying economic activity.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Two Damn Good, Very Different Movies About Soldiers Returning From War

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Students Aren’t Going to College Football Games as Much Anymore, and Schools Are Getting Worried

The Good Wife Is Cynical, Thrilling, and Grown-Up. It’s Also TV’s Best Drama.

  News & Politics
Weigel
Sept. 19 2014 9:15 PM Chris Christie, Better Than Ever
  Business
Moneybox
Sept. 19 2014 6:35 PM Pabst Blue Ribbon is Being Sold to the Russians, Was So Over Anyway
  Life
Inside Higher Ed
Sept. 19 2014 1:34 PM Empty Seats, Fewer Donors? College football isn’t attracting the audience it used to.
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 19 2014 4:48 PM You Should Be Listening to Sbtrkt
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Medical Examiner
Sept. 19 2014 5:09 PM Did America Get Fat by Drinking Diet Soda?   A high-profile study points the finger at artificial sweeteners.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.