I’ve been writing about bad policy at the state and local levels for years now. Most recently I told you about the rough state of affairs in Hartford, CT, a major American city that’s headed toward a possible bankruptcy. Another government on the brink is the state of Illinois, which credit ratings agencies are watching like vultures for any sign of weakness. Now, Cato Institute senior fellow Dan Mitchell asks if Seattle isn’t committing economic suicide with its plan for a local income tax.
From an economic perspective, I think a local income tax would be suicidally foolish for Seattle. Simply stated, this levy will drive some well-heeled people to live and work outside the city’s borders. And when revenues fall short of projections, Seattle politicians likely will compensate by increasing the tax rate and also extending the tax so it is imposed on those with more modest incomes. And that will drive more people out of the city, which will lead to an even higher rate that hits even more people.
Lather, rinse, repeat.
Though I pointed out that this grim outcome may be averted if the courts rule that Seattle doesn’t have the legal authority to impose an income tax.
But I also explained in the discussion that a genuine belief in federalism means that you should support the right of state and local governments to impose bad policy. I criticize states such as California and Illinois when they expand the burden of government. And I criticize local entities such as Hartford, Connecticut, and Fairfax County, Virginia, when they expand the burden of government.
But I don’t think that Washington should seek to prohibit bad policy. If some sub-national governments want to torment their citizens with excessive government, so be it.
Read more from Dan here.