Your state wants to secede from the union. What will this mean for your taxes?
I have good news and bad news. The good news is really good. But the bad news is really, really bad.
We’ll get to them in a moment.
Talk of secession is in the air. The White House this week confirmed that residents in all fifty states had submitted petitions asking to leave the union. Will the last one left please turn out the lights?
Residents in seven states, all in the former Confederacy, submitted more than 30,000 signatures each — enough that some hapless bureaucrat or intern will now have to take a look at their petitions.
The news comes 150 years after the Civil War, and just in time for Steve Spielberg’s biopic of Abraham Lincoln, the man whom we have to thank — if that’s the word I want — for the continued forcible marriage of the once-independent states.
It’s only a couple of years since Texas governor Rick Perry hoisted a rhetorical secessionist flag in response to Obamacare. In the last few years, anti-federal “10th Amendment” resolutions, emphasizing the primacy of states’ rights versus those of the union, have passed the legislatures of 12 states in the South and West. In five states, the governors signed them, too. (The 10th Amendment to the Constitution says states’ rights come before those of the federal government. The last time anyone in Washington actually paid attention to it, the ink was still wet.)
But what would any of this actually mean for your taxes?
The upside is you will be liberated from the sheer living hell of the federal tax code.
I don’t care where you live, and how badly run your local state government is. Nothing could be worse than this monstrosity. I once calculated that it was three times as long as the complete works of William Shakespeare. The instruction booklet for citizens, once two pages long, is now pushing 200.
The federal tax code is the kind of punishment victors used to impose on conquered peoples, along with the gouging of eyes and the rack. That was in the days before the Geneva Convention. I still don’t understand why, in this country, people are simultaneously considered so monumentally stupid that everything has to come with idiotic warnings on the side (“Caution: Do not jab fork repeatedly in eye, or injury may result”), and yet are considered so brilliant that they can maneuver through Schedule C, Schedule F, Schedule X, calculate your passive losses, divide by the shoe size of your sixth grade primary school teacher, carry the 7 unless it’s a Thursday, and multiply by the square root of the I.Q. of the guy next to you on the bus, and so on.
It’s not the total amount of federal tax dollars I pay which makes me want to put on a grey uniform; it’s the awful, awful process.
Secede, and you will never have to file a federal tax return again. Bliss. That’s the good news.
Alas, there’s also some bad news.
For most of you in the New Confederacy of the South and West, if you secede you will end up paying more in taxes than you do now, and you will get fewer government services. Forget the so-called “fiscal cliff.” We’re talking about a fiscal Death Star. Your economies will go into recession, and fast.
That’s because your state receives far more back from Uncle Sam in government spending than you pay in federal taxes. If you go it alone, you’ll have to make up the difference yourselves.
Take Alabama. (No jokes, please). It’s among the seven states whose secession petition has landed 30,000 signatures. Its legislature has also passed, and its governor signed a 10th Amendment Resolution. But at the last count, Alabama got back about $1.66 in federal spending for every dollar its citizens paid in federal taxes. The gap — the subsidy the rest of America paid to Alabama — totaled about $3,800 for every person in the state.
Louisiana is also among the seven petitioning for secession. A 10th Amendment resolution has passed both houses of its legislature.
At the last reckoning, Louisiana got back about $1.78 from Uncle Sam for every dollar its citizens pay in. That was about $4,200 per resident.
These figures are admittedly long in the tooth. They date back to 2005. They used to be calculated every year by the Tax Foundation, a conservative-leaning, albeit independent, Washington think tank. Alas, the Foundation says funding dried up for the research. Conservative-leaning donors became reluctant to pony up. You can see why.
While the foundation is no longer doing the math, the general trend has remained the same. The allegedly “low tax,” conservative red states of the South and West are heavily subsidized every year by the federal government. In other words, they are subsidized by the New Union: the states of the Northeast and the West Coast.
The picture was astonishingly consistent year after year as the Tax Foundation did the study.
Take the seven states which have gathered 30,000 or more signatures to secede: Alabama, Florida, Georgia, Louisiana, North Carolina, Tennessee and Texas.
In the last year for which the Tax Foundation ran the numbers, their residents paid about $473 billion in federal taxes and received about $533 billion in federal spending. In other words the seven states which want to secede the most pocketed a $60 billion subsidy from Uncle Sam. That works out at about $700 for every household in the rest of the country.
Meanwhile, most states in the Northeast, around the Great Lakes and on the West Coast paid in more than they got back. Californians paid $1,300 more in taxes than they got back in federal spending at last count, according to the Tax Foundation. New Yorkers paid $2,200. New Jerseyans: $3,200.
The real mystery is why voters in these states continually vote for more federal programs. They’re turkeys voting for Thanksgiving.
Some years ago, over lunch, I put this to a Massachusetts Congressman. He had no response.
Bottom line?
If you live in the New Confederacy, and the local secession movement really gathers momentum, you may want to make two smart financial moves.
The first is to sell your home, and rent.
The second is to withdraw your money from your local bank before it gets forcibly converted into Confederate dollars. Can I recommend Swiss francs?
Source: MarketWatch (The Wall Street Journal)
