Unbelievable

As you may know, the Bush tax cuts are set to expire next year.  You may also know that Democrats generally favor the increase in the tax rate that those with the highest incomes will experience.

You may not know, however, what three Democrats from New York are doing to exempt their constituents from this.  From the press release on Nadler’s website:

Congressman Jerrold Nadler (NY-08), Congresswoman Nita Lowey (NY-18) and Congressman Steve Israel (NY-02) announced their introduction of the Tax Equity Act of 2009, an important piece of tax legislation designed to adjust federal tax rates to account for the actual cost of living in major metropolitan areas.

Here’s what today’s Wall Street Editorial had to say:

One irony of the tax increase that arrives on January 1 is that the it will hit residents of high-income, Democratic-leaning states like California, Connecticut, New Jersey and New York the hardest. This is a problem for pro-tax Democrats.

Enter New York Representative Jerrold Nadler, who wants to exempt his own six-figure constituents from the tax hike he supports. Mr. Nadler’s bill would “require the IRS to adjust tax brackets proportionally in regions where the average cost of living is higher than the national average.”

In other words, the various tax brackets would apply to residents in certain regions at higher income levels versus other parts of the country. A family with an income of $50,000 or even $1 million in Manhattan would pay less federal income tax than a family with the same earnings in Omaha.

More head-scratching justification from Nadler’s release:

“When it comes to the tax code, one size just doesn’t fit all,” said Rep. Lowey. “Residents of the New York metropolitan area pay more for housing, food, and utilities, not to mention some of the highest property taxes in the country. “Making ends meet is difficult in our region even for those with good jobs. It is only fair for the tax code to reflect that reality.”

“A six figure income in Islip is not the same thing as a six figure income in Idaho,” said Rep. Israel. “New Yorkers pay some of the highest taxes in the country, but we also pay some of the highest housing, food and gas costs. Middle class and working families in New York are taxed as if they were rich, and that’s not fair. Our plan for a regional cost of living adjustment will bring fairness back to the tax system and lessen the burden on New York’s middle class and working families.”

UNBELIEVABLE!  I thought I agreed with Milton Friedman’s quip that he is for a tax reduction most any time for most any reason.  I now disagree.

Not only does this wreak of blatant hypocrisy.  It doesn’t make any sense.  Why are taxes and the cost of living in these areas higher?

The answer for taxes is simple.  The constituents have voted for higher taxes through their governmental processes.  If they don’t like the high state and local taxes, elect different people.

The answer for cost of living is less clear for most folks and requires some understanding of basic economics and the law of unintended consequences, but much of the higher cost of living derives from the higher taxes and other local government restrictions on things like housing and development.  Such restrictions have limited supply for real estate in areas with burgeoning demand driving real prices that show up as a higher cost of living.

Here’s a thought for the three Representatives:  Don’t expect the rest of the country to subsidize your areas for the poor decisions they’ve made in the past.  Keep taxes low for everyone and work with your local politicians to reduce the local tax burdens.

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