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Tax Dependent States

The new Republican tax plan takes away the deduction for state income taxes, which will hit the high-tax blue states hardest. The red states that voted for Trump are the federal welfare cases.

This cartoon features very blue California and very red Tennessee, two great examples of blue-donor and red-dependent states. I drew this one as a local cartoon for the weekly Nashville Scene when I was living in Nashville and I updated it a bit to apply to the issue today. Things don’t change much.

If this was an issue of fairness, the income tax should be reduced in hight-tax donor states and increased in low-tax dependent states. Of-course this is not an issue of fairness. The red states voted for Trump and now it is time for them to get some payback, at the expense of the Hillary states.

By Daryl Cagle

Daryl Cagle is the founder and owner of Cagle Cartoons, Inc. He is one of the most widely published editorial cartoonists and is also the editor of The Cagle Post.

One reply on “Tax Dependent States”

I don’t believe you have it right on your cartoon “Tax Dependent States. You are confusing two issues. The first issue is receipt back from the states of the percentage of federal income tax paid by their state residents for example; for every dollar paid into the federal treasury how much comes back to that state. Depending on the state the percentages will vary, but by way of example some states get back only 95 cents for each dollar paid into the federal treasury and some states receive back more than one dollar for each dollar paid into the federal treasury. You are right that California gets less than a dollar back for each dollar paid to the feds and Tennessee gets more than a dollar back for each dollar paid to the feds. But you can’t just leave it at that and here’s why.

The federal government is subsidizing the high income tax states by allowing those state residents to deduct more state income tax deductions off of their W2 federal income tax return. Let’s do the math on an apples to apples basis. Let’s assume both a California and a Tennessee resident make a gross income of $100,000 per year and that the California state income tax rate is 10% and the Tennessee rate being 5%. I researched these numbers. Let’s assume a federal 30% tax rate for both and everything else is equal. So here you go:

California: $100,000 – $10,000 (10% state income tax) = $90,000 (income after state tax deduction. $90,000 X 30% = $27,000 federal tax due.
Net income: $63,000. Total tax paid is $27,000 federal and $10,000 state income tax = $37,000

Tennessee: $100,000 – $5,000 (5% state income tax) = $95,000 income after state tax deduction. $95,000 X 30% = $28,500 federal tax due.
Net income: $66,500. Total tax paid is $28,500 and $5,000 state income tax = $33,500

The California resident paid more combined total tax solely due to their state tax being higher. The Tennessee resident paid less total tax solely due to their state income tax being lower. But look who paid the most federal income tax. The Tennessee resident did by $1,500 more. The Tennessee resident is subsidizing the California resident by the tune of $1,500 being paid in more federal taxes. Where is the fairness here? The blue states are proportionally paying less federal tax and piggybacking on the fiscal income tax restraints of the red states while taxing their blue state residents more.

Lastly, on a political note, since the inception of this Republic, there has always been pork barrel politics of each state trying to get at least its share and more than its fair share of the federal bacon. This is a major part of what our U.S. senators and congressional delegations are elected and sent to Washington, D.C. to do. It seems to me that if Tennessee is getting more than its fair share perhaps one must come to the conclusion that Tennessee has better/more powerful politicians than California. California’s politicians may not be so adroit in the national arena, but their state legislators use the mathematical interplay of the state/federal tax system tax to slide more tax revenues on to the California side of the ledger book and less on the federal side while giving their residents a tax placebo. A feel good notion that all their California state taxes are fully deductible on the federal return.

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