SALT

Add more SALT? Legislators and governors in blue states always answer 'yes' to that question, raising state and local taxes (SALT) repeatedly over the years. The overall tax bill for residents in blue states has caused many people to become tax refugees—fleeing their home state for lower tax red states. The reasons for more SALT are many, but the top of the list is a blue disposition to tax and spend, coupled with repeated concessions to public sector unions (think: unfunded pension obligations) in those states.

And now, the new federal tax reform legislation sets an upper limit of $10,000 on SALT deductibility. Obviously, this isn't a problem for people who take the standard deduction along with a significant percentage of middle class people in those blue states (who don't pay over $10,000 in SALT). But the governors of blue states are in a tizzy. William McGurn reports:

In his official address kicking off the new year—and no doubt his bid for the White House—Mr. Cuomo accuses Republicans in Washington of having declared an “economic civil war” aimed at “robbing the blue states to pay for the red states.” The reference is to the limit on deductibility for state and local taxes in the GOP tax reform passed just before Christmas. The effective tax hike on New York residents, the governor complains, “could cause people to leave the state.”

Hyperbole aside, Mr. Cuomo and other blue-state governors are right about the pain. The SALT deduction operated as an effective federal subsidy for blue-state taxpayers because it returned to them some of the high taxes they paid to their state governments. With the deduction now capped at $10,000, citizens in states such as New York, New Jersey, California and Connecticut will be feeling more keenly the pinch of their states’ tax and spending policies.

The primary argument that Cuomo and other governors use is that citizens in blue states pay a disproportionate shart of federal taxes, and the SALT deduction used to allow them to recoup some those payments. There are two problems with that argument:

1. Why is it that progressive politicians don't feel the same way about the fact that 20 percent of taxpayers pay a disproportionate share (about 80+ percent) of all federal income taxes? If the argument can be made for blue states collectively paying a disproportionate share of federal taxes, why not the same argument for individuals? I haven't heard Governor Cuomo argue that we're "robbing high income taxpayers to pay for low income taxpayers."
2. Why is it the progressive politicians use the "fair share" meme repeatedly when discussing the "rich" and taxes, but suddenly jettison that position when the "rich" in their states are asked to pay their SALT with only a $10K deductible amount. After all, in the main, if you're paying more than $10K in SALT, you're not on food stamps.

It's interesting that the Andrew Cuomos of Democratic party tell us repeated that high taxes have no economic affect. But deep down, they know that's simply untrue. McGurn comments:

Ironically, in the course of denouncing the attack from Republicans in Congress and the White House, Mr. Cuomo ceded their core argument: Tax rates affect behavior. For in his declaration of war, Mr. Cuomo admitted his worry that hiking the marginal tax rate on New Yorkers gives them an incentive to relocate. Until now it was supposed to be a Republican canard that highly taxed blue staters defect to lower-taxed red states.

I completely understand that beleaguered taxpayers in blue states are angry. I would be too. But the proper approach should be to demand that their legislators get spending under control, thereby reducing the taxes they must pay. Of course, that won't happen, and it's really not the taxpayers' fault. The other option that many are taking is to leave.

Then again, those of us in red states with balanced budgets and low taxes shouldn't be asked to subsidize "the rich" who choose to live in high tax states. Their legislators and governors are the ones who have initiated an "economic civil war" against their own citizens.