Which states get hit hardest when SALT deduction is eliminated?

Looks like it might just be rich folks paying their fair share.

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Everybody knows that tax-payers in liberal-leaning states (CA, NY, NJ, MA, CT) will get hit the hardest when the GOP plan to eliminate the SALT (state & local taxes)  deduction is disallowed.

And, everybody has probably heard Chuckie Schumer whine about how New Yorkers toss more into the government coffers than they get back.

The Rockefeller Institute of Gov’t pulled together those 2 observations into an interesting (albeit a bit complicated) chart.

image
click to enlarge

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Let’s decode the chart …

The vertical axis basically indicates if a state puts a low or high SALT burden on its residents.

The horizontal axis indicates if a state’s Balance of Payments with the Feds is positive (to the left) or negative (to the right).  That is, does the state get back from the Feds (in goods and services) more or less that its residents pay in Federal taxes.

For example, Hew York is in the upper right quadrant.

Chuckie is right: New York (a high SALT state) pays more to the Feds than it gets back.

Maryland and Virginia are in the upper left quadrant: residents pay high SALT but get more back from the Feds than they pay in Fed taxes.

All of which illuminates a couple of interesting points …

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1)  Yep, the richest states gets dinged the most in taxes … SALT and Federal.

But, isn’t that just a fine example of the rich paying their “fair share”?

Hmmm ….

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2) One might hypothesize that the upper-right states have higher SALT because they are drawing less from the Federal coffers than they are putting in.

My take: Nice try.

An alternative hypothesis: states with high SALT may be providing costly, non-essential services to citizens. non-citizens and non-tax-payers alike.

That’ll run up a tab pretty quickly.

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3) Maryland and Virginia have relatively high SALT that are partially offset by a nice draw from the Federal coffers.

My take: There are some benefits to living in proximity to the “swamp”.  You get to suck more out of the swamp  Federally-provided services … and wages!

See our prior post Living high off the pork …

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4) The lower quadrants (low SALT) are populated by states that voted for President Trump.

Hmmm …

Simply a coincidence or a lesson on not messing with big dogs?

You decide.

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#HomaFiles

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One Response to “Which states get hit hardest when SALT deduction is eliminated?”

  1. Paul Curtin Says:

    I get the chart, but I’m not following your conclusions prof Homa.

    One example: What is the evidence to reject the original hypothesis in number 2 in favor of your take?

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