It wasn’t long after Donald Trump’s recent proposal to reverse his $10,000 cap on the State and Local Tax deduction (otherwise known as SALT) that critics on his right flank criticized the move. Supposedly past deductibility existed as a subsidy of blue states by red states, plus return of the deduction would allow high-spending and high-tax blue states to continue each with renewed vigor.
Both critiques missed the mark. Red states should be most in favor of Trump’s pro-growth desire to revive SALT.
The answer for why can be found in the low rates of state taxation enjoyed by red state citizens. The latter implies a broad embrace of limited government within them. Which is crucial to remember when thinking about the 2017 cap of the SALT deduction. It unfortunately increased the federal tax burden for citizens of blue states already heavily taxed on the city and state level. It speaks to value of the former deduction. For red state citizens.
Lest readers forget, money that flows to Washington via taxation doesn’t sit idle. In reality, every extra dollar making its way to Washington amounts to an extra dollar of control that Congress has over the American people, and the American economy. Which is just a reminder that a tax on high-earning citizens of blue states is a growth-sapping tax on every American as Washington’s tax-grab grows.
As for the suggestion that a return of the SALT deduction would enhance the ability of states to tax and spend, call that yet another impressive feature of expanded deduction. As conservatives have long made plain, governance and the taxation required to maintain it should be as local as possible. This way citizens get to choose their taxation and size-of-government bliss. SALT delivers here. It pushes more taxing and spending to the people in cities and states that desire it, all at the expense of federal tax collection.
Lastly, there’s the powerfully pro-growth aspect of Trump’s proposal. To understand why, it’s useful to remember that citizens of high-tax and high-spending blue states like Massachusetts, New York and California pay quite a bit more in federal taxes than do citizens in the typical red state. Yes, some of the richest Americans reside in the states with the highest local taxes.
Consider the above in concert with the reality that the top ten percent of American earners own 89 percent of equities. The well-to-do, by virtue of being well-to-do, have disposable funds that they’re capable of putting to work. There are no companies and no jobs without investment first, and SALT reduces taxes on the individuals best positioned to invest what the IRS doesn’t tax away.
In his 2024 campaign for president, Donald Trump has proposed good, bad, and sometimes awful policies. Call the revival of SALT one of his excellent, pro-growth ones for it creating greater incentives for more local governance, limiting the flow of tax dollars to Washington in the process, all the while decreasing the tax burden on those most capable of investing what government doesn’t take from them.
