President Obama’s strongest support in last week’s election was from states that have the highest marginal tax rates for the top earners in their states. The average top marginal tax rate in the states (and Washington DC) that President Obama won is 6.24% while the average top marginal rate in the states that Mitt Romney won is 4.92%.
In addition, a simple regression of President Obama’s percentage margin of victory (or loss) against the top marginal tax rate in a state indicates that each one percentage point increase in a state’s marginal tax increased the President’s margin of victory by 3.35%. This means the higher the marginal tax rate paid by top earners for the state income tax, the greater the support for President Obama. The following graph shows the relationship between the margin of victory and top marginal tax rates. The regression relationship is statistically significant. (The t-statistic on the marginal tax rate variable is 2.92.)
There are, of course, other important factors influencing election outcomes. But it appears that the President’s strongest supporters and the base of the Democratic party tend to live and work in states that have the highest marginal income tax rates. The Republican party and the President’s opposition live and work in states with lower marginal tax rates. Both sides have been elected to come back to Washington and work on a solution to avert the fiscal cliff and achieve some type of Federal income tax reform. A key area of disagreement is about the top marginal tax rate for the highest income earners. A compromise on this issue may be difficult to achieve given the policy preferences and philosophies of each party’s base.
Note: the top state marginal tax rates used in this analysis are from the Tax Foundation.