by Mitch Kokai
Senior Political Analyst, John Locke Foundation
New Jersey’s incoming Democratic Gov. Phil Murphy was aiming to impose a millionaires’ tax to boost state spending. But top statehouse Democrats balked as they saw the Republican tax plan advancing in Congress.
In rewriting the compact between Washington and lower levels of government, most notably by significantly limiting the state and local tax deduction, the GOP tax plan would make such state tax hikes much more painful.
The tax overhaul would raise the taxes of some earners and make it harder for states to do the same. The ultimate effect would be to decrease governments’ ability to raise taxes and increase spending – essentially reining in state budgeteers.
That is an advantage to conservatives who have long sought to advance fiscal conservatism at the state level and who see the state and local tax deduction as a subsidy for high-spending, high-taxing states – that is, blue states.
“This was our point from the start,” said Jonathan Williams, chief economist at the American Legislative Exchange Council, a group that advocates free-market policies for state governments.