>While this is definitely true, as someone who also lives in a high tax state and is impacted by this change, it is the policy-wise correct way to do taxation.
Given the amount of federal spending that is just grant money to states for things (not to mention the history of the US as a loose association of strongly governed states under a weak(er) federal government), I'm not sure I agree with this.
If CA or NY lowered their taxes, they'd end up getting back a significant amount of the difference as increased federal grant money to the state. That's what happens in many lower tax states right now! By removing SALT, you change the calculation in a different way. CA doesn't need the money, so the government can spend it elsewhere. Its a different thing.
I'm not sure I follow your argument. The point i'm making is that, as a way to structure taxation, I don't think it makes sense for state taxes to funge against federal taxes. It creates incentive problems that distort policy decisions at the state level. If CA/NY/etc would get money back from the fedgov as grants, then they should do that. They shouldn't have this weird backdoor into grabbing part of the federal government's revenue.
>It creates incentive problems that distort policy decisions at the state level.
What are the negative outcomes of such policies? I'd argue that the outcomes are more self-sufficient state governments with less reliance on federal grant money. The question then is if that's something the federal government should encourage.
I'm pretty sure a fiscal conservative would say yes. As would a states-rights conservative.
Most tax policies are ways to encourage or discourage specific behaviors. Your "weird backdoor" is another person's "explicitly encouraged behavior". You've got to justify why the behavior is bad and should not be encouraged, and I don't think you've done that. You've just (I think) claimed its unfair, but every state works under the same federal government. They could all do the same stuff.
It's bad because it creates an incentive for the state to tax in a particular way that may not be optimal. Income taxes are cheaper for states to levy than all other forms of tax because of this backdoor. That is bad.
> It's bad because it creates an incentive for the state to tax in a particular way that may not be optimal. Income taxes...
But SALT isn't limited to income taxes, it includes sales taxes (which you can more easily track with credit card purchases [than you could in the past]), property taxes, car registration taxes, etc.
They're encouraging them to use a specific form of taxation. Income tax is not especially optimal for a number of reasons, but that's not the point. The federal government simply shouldn't be pushing the states into preferring one style of taxation over another unless it has a good reason to - which they don't.
This applies equally to anything though. You're arguing against taxation as a form of incentive towards rational actors, which is to say that you're arguing against taxation.
> which they don't.
I provided at least one: self sufficient state governments that don't need federal aid.
> This applies equally to anything though. You're arguing against taxation as a form of incentive towards rational actors, which is to say that you're arguing against taxation.
That argument is contingent on certain linear utility curves that are probably not empirically borne out.
> I provided at least one: self sufficient state governments that don't need federal aid.
And how are those things related to deducting state tax?
Giving states the ability to tax more without an additional burden on their population shifts the onus of supporting that population from the federal to the state government.
The state can have a higher tax rate without an overwhelmingly high tax rate on its citizens, and can thereby have enough revenue to provide services without federal aid (that the same revenue would have paid for, just indirectly through the federal government first).
>That argument is contingent on certain linear utility curves that are probably not empirically borne out.
Just because price elasticity isn't linear doesn't mean that price changes have no effect on demand.
Given the amount of federal spending that is just grant money to states for things (not to mention the history of the US as a loose association of strongly governed states under a weak(er) federal government), I'm not sure I agree with this.
If CA or NY lowered their taxes, they'd end up getting back a significant amount of the difference as increased federal grant money to the state. That's what happens in many lower tax states right now! By removing SALT, you change the calculation in a different way. CA doesn't need the money, so the government can spend it elsewhere. Its a different thing.