A provision in the recently enacted federal tax bill eliminates deductions for state income taxes paid and limits property tax deductions. This is like a dagger in the back to Illinois and other Blue (Democratic) States.
At the same time, this proviso increases the pocketbook attractiveness of the Old South, stretching across Florida to Texas, as a place to locate.
To add insult to injury, government programs in the Old South have been kept afloat for decades by Blue State federal taxes that are transferred to Old Dixie.
And I am just cynical enough to think that incredibly savvy Southern members of Congress are chuckling among themselves over their bourbon and branch water about the double win they achieved. And I’ll bet their state economic development offices are dusting off their “move to our state” ads for showing in Blue State markets.
Let me explain.
In 2013, the last year for which I have handy-dandy state rankings on my bookshelves, Illinois paid about $11 billion in state individual income taxes. Those of us who itemize our returns will no longer be able to deduct our shares of that $11 billion on our federal tax forms.
This may not increase my taxes much, but it will increase big time those of upper-middle and upper-income taxpayers in Illinois. These are exactly the people we want to retain in Illinois because they create wealth and jobs.
Other Blue States, primarily located on the West Coast and in the Northeast, have much higher top marginal individual income tax rates than Illinois, so will bear even more of this new tax burden.
I toted up the potential lost deductions for California, the Northeast including New York, and Illinois: $125 billion in state income taxes that can no longer be deducted.
Then I looked at total potential lost deductions for the Old South (Texas, Louisiana, Mississippi, Alabama, Georgia, South Carolina, North Carolina and Florida). These totaled just $25 billion, even though these states have 80 percent of the population of the Blue States above.
Texas and Florida famously have no individual income taxes. The Lone Star State benefits, however, from oil and gas revenue. It also puts a sales tax on almost everything; Illinois does not.
Florida welcomes millions of snowbirds each winter; they pay sales taxes while in the Sunshine State, but rarely have children and grandchildren in public schools and universities there.
As for the Blue States keeping Old Dixie afloat:
First, the Blue States noted above all receive less than a dollar back from the federal government for every dollar they pay in taxes to D.C. This, according to a well-researched May 2014 article in the Atlantic magazine.
Illinois is almost at the bottom (48th), getting only 80 cents back for every dollar we send.
In sharp contrast, South Carolina receives $8 (!) back from our federal government for every $1 it sends.
The Old South is the heart of Red State strength. Their treatment of the Blue States in my illustration is both partisan and sectional.
This sectionalism is likely to become more accentuated, at least in the coming few decades. Americans are rearranging themselves, generally speaking, to locate with more like-minded folks.
Oldsters are moving south. Young professionals are moving to the big cities. Highly educated folks tend to live on the coasts.
This tends to make the Red States more so, and Blue States ditto. This may add, if more is possible, to the partisanship we see in Congress.
Illustration: For decades, Illinois had one GOP U.S. senator and one Dem. If the majority party caucus had a bill that might hurt Illinois, we always had a senator inside that caucus to try to protect the state. No longer.
Thus, I hope you can see why I fear this new sectionalism, for Illinois will tend to be a loser in this game, at least in the short run.
Note to readers: Jim Nowlan of Toulon can be reached at email@example.com.