Gov. Cuomo’s Tax Proposal and Blue Inequality

by Reihan Salam

I’m hoping that Josh Barro will write something on Gov. Cuomo’s new schedule of marginal tax rates for New York state households and Kevin Williamson has already discussed the implications. I did, however, want to make one small observation. The Capital Tonight blog quoted Ken Lovett of the Daily News on the proposal (unfortunately, the link to Lovett’s post is dead) as follows:

“Those making between $40,000 and $150,000 will pay a rate of 6.45%, down from the current top rate of 6.85%. Those making between $150,000 and $300,000 will pay a rate of 6.65%, down from 6.85%.

“For those making between $300,000 and $2 million, they will pay 6.85%, the current top rate. But Cuomo and legislative leaders will argue that is a drop from 7.85% to 8.97% they were paying under a three-year-old tax surchage on the wealthy due to expire at the end of the year.” [Emphasis added]

While one can make a plausible case for easing the income tax burden on households in the $40K-150K bracket, is there a strong normative case for the modest cut for $150K-300K bracket? One assumes that this new more progressive structure flows from the belief that affluent households are not doing enough to pay their fair share and that this is a good reason to create new millionaires’ tax brackets. So are we to understand that $150K-300K households have been paying more than their fair share? Naturally, conservatives are inclined to embrace this view, but conservatives are also inclined to reject the creation of new millionaires’ tax brackets.

There is another more cynical explanation for the modest break for $150K-300K households which flows from the work of Andrew Gelman and his colleagues in Rich State, Poor State, Red State, Blue State. The following is a brief summary of their findings:

We find that income matters more in red America than in blue America. In poor states, rich people are much more likely than poor people to vote for the Republican presidential candidate, but in rich states (such as Connecticut), income has almost no correlation with vote preference. The United States has red and blue voters, and red and blue states, but income cuts across them in different ways (a point noted by Alford (1963), in his study of social class and voting by region of the United States). 

And later in the article, the authors offer a thoughts as to why this pattern obtains:

Income is not the driving factor in politics in the United States. However, income is important in political perceptions and is also clearly relevant to a wide range of policies including minimum wage regulation, tax rates, Social Security, etc., and is also correlated with many measures of political participation (Verba et al. 1995). Similarly, geography is not an all-important factor in politics: red/blue maps of elections are appealing, but most of the states are not far from evenly divided. But, once again, geography is highly relevant to decisions on government spending, among other policies. …

As we have seen, state income is an important predictor of voting behavior in presidential elections, especially for people on the higher end of the income scale. Journalists’ focus on red/blue maps has been somewhat misguided, but the differences between states are real, and indeed have changed in recent decades.

Geography matters politically. States are not merely organizational entities — mere folders that divide individuals for convenience. Nor are the differences cosmetic: a y’all here, a Hahvahd Yahd there. No – states have real, significant cultural and political differences. And despite the centripetal tendencies of a national media, drastically lower transportation costs, and a consumer economy frequently indistinguishable along regional lines (Starbucks everywhere) — regional political differences seem, if anything, to be getting more pronounced in the last decade or two.

To the extent political scientists want to understand political behavior in a federal system, we must recognize these differences. From a politician’s perspective, given policies will be received differently in various states, even though those states are internally diverse. Therefore, an incentive to target policy geographically exists and has only gotten stronger. For policy analysts, then, increased attention to geography is also warranted.

Basically, upper-middle-income households in New York state are quite likely to be partisan Democrats. While two-earner households in red states might be inclined to oppose higher taxes are more steeply progressive taxes, those in blue states might see themselves as part of the straitened middle-class majority that (a) deserves a tax break and that (b) benefits from increased public expenditures or from sustaining a high level of public expenditures. One reason for (b) is that a non-trivial number of households in the $150K-300K bracket consist of couples in which one or both partners work in the public sector. 

A cruder way of putting this is that what we might characterize as the self-identified “victim class” in New York state might include large numbers of $150K-300K households. Moreover, this is a category that includes a significant number of people in media and allied professions who have disproportionate influence in politics (because they make small-dollar donations, because they help frame and spread political narratives, etc.) and who find themselves in competition with more affluent households for various positional goods, thus making them more inclined to be rankled by inequality as such. 

David Brooks wrote an illuminating column (“The Wrong Inequality“) on this subject in late October. Not surprisingly, many people in the media were sharply critical of Brooks’s take, preferring a more straightforward narrative in which the “victim class” is so large as to encompass all but a small handful of households. This did not surprise me. 

(I write all of this in full recognition of the fact that there are households in the $150K-300K who really do face economic challenges, many of which flow from the high cost of living in New York city and its environs. For those of us who love New York city, the raising children is a daunting one, particularly as inefficient compensation structures and the rising cost of pension contributions crowd out the city’s ability to offer public services of reasonable quality. Relatively few New Yorkers connect the dots, however, particularly since many are both beneficiaries and victims of a highly inefficient public sector. For more on this subject, see Brueckner and Neumark.)

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.