Quote (Black XistenZ @ Dec 16 2019 10:45am)
It's not about state rights or who administers a program, this is about high-tax states being able to have their residents pay less in federal taxes because their state taxes are so high.
Essentially, there are two competing approaches. The blue state models is "higher state taxes, but higher levels of services and state spending on its residents, its infrastructure, etc". The red state model is "low state taxes, but less services".
Basically, the higher state taxes are the "fair price" that blue state residents have to pay for the increased level of services and state spending. If they can set off their high state taxes with their federal tax, they are paying less in federal tax than a red state person of equal income situation.
Hence, via the SALT deductions, blue state people paid less than their fair share in overall taxes, at the expense of the federal budget, which has to be balanced by either hikes in federal taxes, increased federal debt, or reduced federal spending - all of which hit blue and red state people equally.
The bottom line therefore is that the SALT deductions allowed the blue states to leech off of the red states, and more importantly: it allowed them to distort the tradeoff of their "blue state model", to make it seem more advantageous and attractive than it actually is - which has a lot of political implications.
But when you have "lower taxes and lower services," the federal government steps in to fulfill that service OR the people end up stuck in a cycle of poverty. I think a more holistic analysis is required in these exercises.
If you look at it in a vacuum though, you're correct. Two people making 100 grand would have the following breakdown. Red state guy pays 25k in income to the feds. Blue state guy pays 10k to the state and then pays 22.5k in income to the feds (90/4 due to the deduction). So yes, the red state guy pays more in federal tax while the blue state guy pays more taxes in general.
Now, in aggregate, you end up with something closer to reality. The investments that blue states make tend to pay off in that they are better educated, healthier, wealthier, etc. There's a reason why there's a lot of industry associated with universities. If Stanford and Berkeley weren't in the Bay Area, you wouldn't have multiple national labs there and you certainly wouldn't have Silicon Valley. In a service based economy, you need to follow the blue state model unless your state is rich in natural resources (Texas, Alaska, etc.).
At the end of the day though, we're talking about something that's pretty inconsequential in terms of funding. The SALT cap sucks for people like me, and I'd love to get rid of it to get a couple thousand bucks, but it's existence doesn't really change anything in the aggregate. It's strictly political.
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