Raising the SALT Cap Is a Gift to High-Tax States

Capping state and local tax deductions sparked a tax migration that rewarded pro-growth states. Raising the cap now would stall reform where it’s needed most.

By Jared Dillian of Reason. Excerpts:

"The result was a significant migration of people and capital, with impacts that will be felt for decades. California is losing 500,000 residents annually (about 1 percent of its population), primarily to states like Idaho, Arizona, and Texas."

"The rationale behind capping the SALT deduction was that it would disproportionally benefit high-income earners in high-tax states—and it did. In effect, the federal government was subsidizing the tax-and-spend policies of these states by shielding residents from the full impact of local tax increases."

"no high-tax state has reduced its tax rates in response to the SALT-driven migration, and they likely won't until they face a full-scale drain of intellectual and economic capital."

"raising the cap on SALT deductions would ease pressure on blue states to simplify or lower their tax rates.  Consider that California's top marginal rate is a whopping 13.3 percent. When combined with a top federal rate of 37 percent, Golden State residents are approaching a Sweden-level tax rate. Meanwhile, seven states impose no state income tax at all. This dynamic highlights the beauty of the American political system—the states compete for talent and resources. Over time, high-tax states will lose capital, and low-tax states will benefit."

"Cities like Nashville, Austin, and Miami are thriving as new hubs of innovation precisely because they've embraced freedom and pro-growth policies."