PUBLISHED IN DRAFT FORMOne of the my favorite quotes of the 2020s about local politics comes from Matt Yglesias:
The other thing is that progressive politics in the United States is very . . . I wouldn’t say it’s very unpopular because if it was very unpopular, it wouldn’t win anywhere or win ever. But the public has serious doubts about putting the left in power in places in ways that a lot of people I know are a little bit in denial about, even though the facts are staring you right in the face. Why are there Republican governors in Maryland and Massachusetts and Vermont? Why is Andrew Cuomo so popular even though people on the left complain about him constantly?
It’s because people don’t want to put left-wing activists in charge of the country.
If you live in a coastal, elite city 1 it’s an odd thing to think that, on the whole, the U.S. public has “serious doubts” about the left at the local level.
Except for a handful of outliers (New Mexico, Colorado, and Illinois), it’s completely the west coast, the northeast, and the DMV2 that are dominated by Democrats at the state level.
For someone living in one of the coastal elite cities it’s like the old adage that a fish doesn’t know it’s in water. Serious doubts about far left governance? It’s just the way it is. The externalities and consequences are the background to our lives. If you live in one of these cities, the homeless person’s tent is just the way it is. The conversation on your walk about whether that’s dog shit or human shit is just normal. The needle in the playground? Yep, just the way it is.
TAXATION
The California billionaire tax is the hot stove conversation in local governance, but it’s the Washington state millionaire tax that might be more interesting.
In Washington, the proposed tax a 9.9% tax applies only to the portion of income exceeding $1 million. It is estimated to affect less than 0.5% of Washingtonians, with 20,000 households impacted. A very small portion of the population. Twenty-thousand rich people. Who gives a shit, right?
Not so fast. With that introduction, and while I am going to focus on state and local government, the federal income tax history is important to understand:
- 1789–1860 — No permanent federal income tax
- 1861–1872 — Temporary Civil War income taxes
- 1894–1895 — Income tax revived, then struck down
- 1913 — 16th Amendment, permanent modern income tax begins
- 1940s — Income tax becomes a mass tax with paycheck withholding
It’s easy to summarize the history — the U.S. federal tax system started as temporary, and was limited to the relatively well-off. Over time it became permanent and broad-based.
That’s why the Washington millionaire tax is so interesting. It starts with 5% on millionaires, but it will undoubtedly expand. This can be done through raising the 5% rate. Eh. In that case it’s still just those pesky millionaires impacted. Then it might move to a lower income threshold if Washington’s fiscal position deteriorates. Uh oh.3
Lastly, this compounds with the inevitable impact of inflation which will raise the upper classes income and create more millionaires over time, especially in a higher inflation regime than we’ve seen in the last 30 years.
That’s why, ultimately, this has the potential for wider ramifications just as the initial federal income tax did.
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Zooming in from the lovely states of California and Washington — some major cities already have broad-based income taxes. If the millionaire and billionaire taxes are not relatable, a more palatable concept are these city income taxes.
Examples of city income taxes:
- New York City — ~3.9% income tax
- Philadelphia — ~3.7% income tax
- Baltimore — ~3.2% income tax
- Portland — ~3% income tax
- Cleveland — ~2.5% income tax
- Detroit — ~2.4% income tax
These can be meaningful sums for upper-middle class and higher earners. Expenses that can be more than other local taxes, such as those on property.
In some cases your personal math may deem the tax is worthwhile. New York may be the greatest city in the word. If it is for you, then 3.9% is well worth it.
But that doesn’t mean your 3.9% is being well spent. With the likelihood of more and higher taxes in general, choosing a state and even a city to live in may become more important.
GOVERNANCE
Local taxation is ultimately a means to the end. The tax revenue is only as good as the spending programs it underpins.
Most people I interact with would not give high marks to the local infrastructure projects funded by their income tax. At the state and city level, the question is whether it’s stupidity and ineptitude or corruption and misuse.
The obvious example of this is the California high-speed rail of which the cost has run from $33 billion to a projected $135 billion with nothing to show for it. Also in California, the $24 billion in spending to curb homelessness has yielded nothing.
Again, that’s only California. Who cares? The people in charge of such a mess must only be able to pull it off in a “crazy place” like California. Uh oh.
That has largely been true over the years — see the Yglesias quote that we started with — but we might be entering a part of the cycle in which the coastal influence is spreading. Look no further than the the 2028 Democratic presidential nomination odds.
The person who is the actual face of California state governance, and previously San Francisco governance,4 is the front runner for the nomination ijn 2028.5
This comes on the heals of Governor Tim Walz, the 2024 vice presidential nominee. In 2025, his local record became such a shitstorm of fraud that he cannot run for reelection locally let alone for national office. In 2026, we’ve progressed to an actual socialist is the mayor of New York City. The point is NYC is unlikely to be the zenith of this arc further left. It’s probably going to be bigger, and the leading Democratic party candidate is proof positive.
RELOCATION
In the U.S., when the president elect is a member of the party you personally oppose, people often talk about “moving to Canada”. It’s a trope, but it’s real thing that happens. Inevitability these folks don’t move. It’s a snap reaction out of anger. Useless shit-talk. But, what if the concept isn’t completely wrong?
As of yet, if you are a reasonable person, you aren’t going to relocate out of the U.S. But the billionaires are essentially doing their version of “moving to Canada” today. They are moving to Florida and Texas in response the these potential local laws. On the surface, this isn’t applicable to me and you. The average person is not going to uproot their life because of an incremental new tax, let alone fear over the potential for a new tax. But tax expense is only the surface-level issue.
The only way states like Florida and Texas can dream to afford to not have income taxes is through better governance structures. Using education spending as a proxy, a dollar spent does not mean a dollar is well spent. The upper-left quadrant is where you want to be in the following graphic showing per-pupil spending and math scores.
In that upper-left quadrant, there’s Florida and Texas. They are among the states that historically spend less yet achieve top tier outcomes. In a world of massive government deficits, this type of efficiency is only going to become more important. Even the sometimes more efficient states like Florida and Texas often have very large debt loads.6
Ultimately, local governance is an extremely complex equation. One institution put together an analysis of state revenues for 2026 and beyond. It shows that the problem is wide ranging across the costal elite states and into the heartland.7
If we play this forward, there could be a future world in which the state-by-state governance policies, and resulting outcomes, continue to further differentiate. In one way, it’s the beauty of the state model. At the same time, it could further inequality.
California is the home to our final anecdote. The home of Hollywood is no longer the home of movie production. The percentage of content filmed in L.A. has dropped from over two-thirds to close to single digits over the course of the last two decades. Why? At least partly because of overbearing regulations hurting industry efficiency and driving up costs.
Choose wisely when thinking about what local governments you are forced to do business with.