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Why the Trump tax cuts could turn into a problem for the Republicans

The creative destruction that has marked the presidency of Donald Trump is one that defies conventional wisdom and attempts at prognostication. But beyond the reactions to salacious tweets, electric “Make America Great Again” rallies, and political food fights with the establishment, Trump may be best remembered for an otherwise traditional policy achievement with his tax cuts enacted during his first year of office.

The Tax Cuts and Jobs Act combined a number of conservative initiatives into a package giving 82 percent of middle class earners a break. While tax reform had a positive effect on families and economic growth, it also created an unintended consequence likely to harm Republicans down the road by sparking a major exodus of voters from blue states to red states. These demographic shifts will have significant political impacts on some of the most critical swing states and could make it more challenging for Republicans to win future elections on both the state and federal levels.

The tax bill mostly closed a major loophole for wealthy residents in blue states with the state and local tax deduction. By capping this at $10,000, Republicans ended a big subsidy to residents burdened by high taxes in states like New York, New Jersey, California, and Illinois, giving these residents more incentive to pack up and relocate to the low tax states.

In New York City, residents pay about 12.7 percent of their income in state and local taxes. For the middle and high income earners, the law drove their taxes up even further since they can no longer deduct such steep taxes. One in every 25 New Yorkers is a millionaire, who each now owes Uncle Sam $21,000 more than they did before the law went into effect. Waves of New Yorkers have already fled south to low tax states like Texas and Florida, both of which have no personal income tax. The exodus is so significant that Governor Andrew Cuomo said earlier this year that the state had faced an unexpected $2.3 billion budget shortfall.

California is also hemorrhaging middle and high income earners to low tax states, and Texas by far is their top destination. It is no coincidence that the fastest growing states are low tax red or purple states that are attracting economic refugees from blue states. On the one hand, these trends are vindication for Republicans, as people flock to conservative states with responsible fiscal policy and low taxes. On the other hand, these shifts could raise difficulties for Republicans in electoral politics.

The 2018 elections may be a small piece of an emerging demographic picture, but we can see parts of a trend coalescing. Cities in Texas are growing faster than cities in all other states. As its population rises with former residents of blue states, there is a growing probability that Texas will become the most consequential swing state in elections to come.

The small government model of low taxes in other states is also acting as an even stronger magnet for residents of blue states after the tax cuts. The tailwind of economic growth and state and local tax deductions is making the decision to move easier for those from blue states. Recent census figures show that the 10 fastest growing states during that time span have low taxes, and that seven of them were reliably Republican.

All these states saw shifts toward the left during the 2018 elections. In Colorado, Republicans came within less than three points of winning the gubernatorial race in 2014 before falling by more than 10 points last year. In Nevada, Republicans could not capitalize on five former consecutive victories, losing the gubernatorial race by four points. In South Carolina, Republicans shrank their advantage in the gubernatorial race to eight points. In Arizona, Republicans took their three point victory in the 2012 Senate race and turned it into a three point loss in the 2018 Senate race.

Perhaps the best example is one that shows the microcosm of the tax law combined with the new shape of politics. Georgia had the seventh largest increase in population last year. The combination of immigrants from other nations, black Americans returning to the south in increasing numbers, and residents fleeing blue states sets the stage for the most contested gubernatorial race of the 2018 cycle. The massive increase in turnout for groups that favor Democrats assisted them in the election.

As the strong economic growth lifts already growing red states, migration will continue to transform the demographics and political calculus across the country. Ultimately, Trump could be remembered for ushering in this era of prosperity, along with inadvertently pushing waves of voters from blue states to red states who could undo his legacy in coming elections.

Kristin Tate is a libertarian writer and author of “How Do I Tax Thee? A Field Guide to the Great American Rip-Off.” Follow her on Twitter @KristinBTate.

Tags Congress Donald Trump Election Government Politics Republicans Taxation

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