Why Blue States Are the Big Winners in Trump’s Tax Plan
Policy + Politics

Why Blue States Are the Big Winners in Trump’s Tax Plan

Reuters/Beck Diefenbach

Placing voting returns alongside President-elect Donald Trump's tax plan documents a remarkable paradox of 2016.

Trump won the presidency by rallying middle-American working-class whites against coastal elites. But his tax-cut plan directly benefits those coastal elites much more.

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How much more? An analysis of Census Bureau income data prepared for CNBC by the Center on Budget and Policy Priorities makes it clear.

Among the 30 states Trump carried against Hillary Clinton last month, 25 contain below-average numbers of the high-income households whose after-tax incomes are projected to rise most as a result of his plan. By contrast, among the 20 states plus the District of Columbia that Clinton carried, 15 have an above-average share of those most affluent households.

That leaves Trump with the political challenge of sustaining support from red states while redistributing the benefits of federal tax policy toward blue states.

Tax experts across the political spectrum agree that the plan Trump has proposed would benefit the richest Americans the most.

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The left-leaning Tax Policy Center estimates that the lowest 20 percent of taxpayers would see their incomes increase by an average of $110, a rise of 0.8 percent. The middle 20 percent would receive $1,010, a 1.8 percent increase. The top 20 percent, would see $16,660, or a 6.6 percent rise; within that group, the top 1 percent would receive $214,690, or 13.5 percent.

Using "dynamic scoring" estimates Republicans favor, the more conservative Tax Foundation still shows the greatest benefits at the top. In the foundation's model, the lowest 20 percent of taxpayers would see after-tax incomes rise by 6.9 percent to 8.1 percent, depending on how the Trump administration resolves ambiguities about some features of its plan.

The middle 20 percent would get 7.7 percent to 9 percent. The top 20 percent would get 8.7 percent to 12.3 percent, and the top 1 percent would see a 12.2 percent-19.9 percent boost in after-tax income.

The state-by-state income data analyzed by the Center on Budget and Policy Priorities comes from the Census Bureau's American Community Survey. It details how those top-income households who benefit the most live disproportionately in pro-Clinton states, while the lower-income households who benefit the least live disproportionately in pro-Trump states.

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For instance, in Washington, D.C. — the very "swamp" Trump has pledged to drain — more than 1 of every 3 households has income high enough to fall into that top 20 percent category nationally. Just behind in concentration of affluence are Maryland (31 percent of households in the highest income group); New Jersey (31 percent), Massachusetts (30 percent), Connecticut (30 percent), Hawaii (29 percent), California (26 percent) and Virginia (26 percent). All those states backed Clinton.

By contrast, just 10 percent of households in Mississippi, 11 percent in West Virginia, 12 percent in Arkansas, 13 percent in Alabama and South Dakota, and 14 percent in Montana and Oklahoma fall among the top income group. Those states backed Trump. All but five of the states the president-elect carried, according to the Census, have more households in the lowest 20 percent income group than in the top 20 percent.

Republicans lawmakers insist the merits of tax plans turn on broader considerations. "The key to me is that what tax reform ought to be about is growth," Sen. John Thune of South Dakota, the third-ranking Republican in the chamber, said in an interview.

Despite the comparatively small number of South Dakotans among top earners, Thune said, growth fueled by tax cuts will eventually create more high-paying jobs. House Speaker Paul Ryan, in an interview earlier this year, said assessing tax cuts by the effect on specific income groups fits the approach of Bernie Sanders-style socialists more than small-government, market-oriented Republicans.

Comments last week by Trump's choice for Treasury secretary suggested the administration's eventual stance may diverge from Ryan's. Steve Mnuchin, a wealthy former Goldman Sachs banker, said the highest-income Americans would receive no net tax cut at all, as the loss of tax deductions would offset benefits they'd reap from lower income tax rates.

"They would have to alter the current plan to achieve what he is claiming," said Kyle Pomerleau, director of federal projects at the Tax Foundation.

Of course, the incoming president might be able to sustain his red state support even without altering his plan. In America's polarized political system, economic benefits represent only part of what motivates voters.

In his campaign this year, Trump commanded the allegiance of white working-class voters anxious about demographic and cultural changes as well as diminished economic prospects. Next year, his political task is keeping them on his side if Congress enacts an economic agenda with a larger dollars-and-cents payoff for others.

This article originally appeared on CNBC. Read more from CNBC:

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