Obama's "Blue State Suicide Pact"

Our Robin-Hood-in-Chief is trying to capitalize on his election victory by humiliating the Republican Party into accepting a tax increase for the wealthiest Americans.

Our Demagogue-in-Chief is hard at work trying to divide the nation by diminishing the Republican Congress.

As always, Obama does not negotiate; he plays for political advantage. When Republicans offer a counterproposal he dismisses it and raises the ante.

One might say, as I have, that Republicans should give in on tax rates if they can make Obama own the economy.

I was assuming that Obama would accept a compromise in which both parties could save some face. Apparently, that is not the case.

If the Republicans hold their ground and the president holds his the economy will suffer. If the president gets what he wants the economy will suffer. 

The difference is, under the president's plan all states will not suffer equally. Joel Kotkin explains that blue states will suffer the most.

Call it social justice: you get what you vote for, even if you didn’t know you were voting for it.

Blue states have the highest concentration of the very rich, and thus, they will lose more money. Kotkin calls the Obama economic plan a “Blue State Suicide Pact.”

Assuming that the wealthy citizens of these states do not flee, they will have less income to spend, less income to hire, and less income to invest in future business.

As Kotkin sees it, Republicans are fighting to protect the blue states. He recommends that they go Clint Eastwood on the Democrats:

So what can we expect to happen if the fiscal cliff appears, or if the President and his party get their taxes on the rich? One can expect a proportionally greater impact on citizens and the budgets of the already expensive, high-tax states, where the new kulak class is concentrated. It may also spark a greater migration of people and companies to less expensive, lower-tax areas.

Perhaps the greatest  irony in all this is that the Republicans, largely detested in the deep blue bastions, are the ones most likely to fall on their swords to maintain lower rates for the mass affluent class in the bluest states and metros. If they were something other than the stupid party, or perhaps a bit more cynical, they would respond to the President’s tax proposals by taking a line from their doddering cultural icon, Clint Eastwood: make my day.

And it might be smarter for Republicans to gird themselves for the next battle: the bailout of California, or the bailout of Illinois.

It might be easier to rally the 49 states against a profligate California than to rally voters against a tax increase that most of them will not have to pay.

 Kotkin offers this analysis:

With their enthusiastic backing of President Obama and the Democratic Party on Election Day, the bluest parts of America may have embraced a program utterly at odds with their economic self-interest. The almost uniform support of blue states’ congressional representatives for the administration’s campaign for tax “fairness” represents a kind of  bizarre economic suicide pact.

Any move to raise taxes on the rich — defined as households making over $250,000 annually — strikes directly at the economies of these states, which depend heavily on the earnings of high-income professionals, entrepreneurs and technical workers. In fact, when you examine which states, and metropolitan areas, have the highest concentrations of such people, it turns out they are overwhelmingly located in the bluest states and regions.

Higher taxes will barely affect the super-rich. They will be felt more directly by those middle-income professionals whose earnings are closer to $250,000.

In his words:

Ironically the new taxes will have relatively little effect on the detested Romney uber-class, who derive most of their income from capital gains,   taxed at a much lower rate. They also have access to all manner of offshore dodges. Nor will it have much impact on Silicon Valley millionaires and billionaires, or the Hollywood moguls and urban land speculators who constitute the Democratic Party’s “good rich,” and enjoy many of the same privileges as their wealthy conservative counterparts.

The people whose wallets will be drained in the new war on “the rich” are high-earning, but hardly plutocratic professionals like engineers, doctors, lawyers, small business owners and the like. Once seen as the bastion of the middle class, and exemplars of upward mobility, these people are emerging as the modern day “kulaks,” the affluent peasants ruthlessly targeted by Stalin in the early 1930s.

Also, the cost of living in blue state redoubts like New York and San Francisco is much higher than in red state havens like Austin and Indianapolis.

Someone who makes $250,000 in New York City and has a child or two in private schools—all of those public education dollars are apparently not being spent very effectively—is scraping by. Someone who makes $250,000 in Dallas is living very comfortably.

If the president succeeds in punishing the rich by limiting the mortgage interest deduction, blue state homeowners will suffer disproportionately.

Kotkin writes:

Moves to curb mortgage interest deductions for affluent households also would fall predominately on these same areas. The states with the highest listing prices — and the biggest mortgages on average – are the president’s home state of Hawaii, followed by the District of Columbia, New York, California and Connecticut. According to the Census Bureau and the Federal Housing Agency, median home values in California are 200% higher than the national median, and in New York they’re 150% higher; in contrast, red Texas’ prices are below the median.

By now everyone knows that blue states suffer from far more income inequality than do red states. Taxing the rich and redistributing the money to the poor does not promote economic growth. It creates a permanently dependent lower class.

Kotkin explains:

What would a big tax increase on the “rich” mean to the poor and working classes in these areas? To be sure, they may gain via taxpayer-funded transfer payments, but it’s doubtful that higher taxes will make their prospects for escaping poverty much brighter. For the most part, the economies of the key blue regions are very dependent on the earnings of the mass affluent class, and their spending is critical to overall growth. Singling out the affluent may also reduce the discretionary spending that drives employment in the personal services sector, retail and in such key fields as construction.

This prospect is troubling since many of these areas are already among the most unequal in America. In the expensive blue areas, the lower-income middle class population that would benefit from the Administration’s plan of  keeping the Bush rates for them is proportionally smaller, although  the numbers of the poor, who already pay little or nothing in income taxes, generally greater. Indeed, according to a recent Census analysis, the two places with the highest proportions of poor people are Washington, D.C., and California. By far the highest level of inequality among the country’s 25 most populous counties is in Manhattan.

That’s the blue state model for you: higher taxes, more inequality, less economic growth.

Then again, blue state voters voted for it. Perhaps it’s not such a bad idea for them to own it.

Should Republicans go to the mat to defend people who always vote against them?

Kotkin’s point is well-argued, factual, and persuasive.