The Blue State Blues

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. The bill is called the Tax Equity Act, but a more accurate title would be the Blue State Tax Preference Act.

“The basic costs of life in the New York region are much steeper than in most parts the country,” says Mr. Nadler. “The reality is that a dollar in New York isn’t worth nearly as much as a dollar in Spokane or Knoxville or Topeka. It’s time for our tax code to take reality into account when assessing someone’s tax liability.”

That point about “reality” and the tax code could certainly use some fleshing out, but leave that aside. A big reason the cost of living is so high in Boston, Manhattan and San Francisco is because of high state and local taxes, union work rules, and heavy business regulation that make it more expensive to produce, sell and buy things.

Why should someone in Spokane or Knoxville or Topeka be penalized because New York and California impose destructive policies? Mr. Nadler also conveniently forgets that the federal tax code already subsidizes high-cost states through the deductibility of state and local income and property taxes.

An all-star line-up of liberal class warriors has nonetheless endorsed Mr. Nadler’s effort to raise taxes on the rich everywhere but in their own districts. New York House Members Tim Bishop, Steve Israel, Nita Lowey, Carolyn Maloney and Carolyn McCarthy are cosponsors. Ms. Lowey, who has voted to tax anything that moves, now says that “When it comes to the tax code, one size just doesn’t fit all” and laments that New York has “some of the highest property taxes in the country.” But whose fault is that?

So welcome to the brave new world of “tax equity.” If you live in a state that voted for Barack Obama, you get a tax cut.