by Josh Marshall
‘SALT’ refers to state and local taxes which have been deductible against your federal income tax burden. Starting in 2018 that deduction will be capped at $10,000. The impact of this will vary dramatically depending on where you live, how much money you make and how you spend that money. But the big picture is that it will have the biggest impact in high tax states and particularly on individuals who live in high tax states, are affluent enough to have a relatively high state income and property tax burden but are yet not so wealthy that they get the big benefits from the corporate and federal income tax reductions in the tax bill.
From a macro perspective, the SALT change means that the higher tax states (mainly but not exclusively blue states) will be sending a lot more money to the federal government. This is on top of the fact that blue/high tax states already send much more money in taxes to the federal government than they receive back in services, grants, general spending, etc. There are significant exceptions. But by and large federal taxing and spending policy draws money from the blue states and reallocates it into the red states. Indeed, a state like Louisiana, for instance, is able to keep its taxes low not simply because it has less expansive government services but also because it funds state government with a substantial infusion of federal subsidy. The new bill will intensify this existing pattern.
This is all by design. This policy is intended to punish states that tend to vote Democratic. The more high-minded explanation of the motivation is that it gives an incentive to lower state taxes. Generic punishment is probably the better way to look at it.
In any case, here’s why I think this is likely to be the most politically consequential part of the bill.***
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