Hi Oklahoma! I’m from Maryland, one of the bluest and most progressive states in the country. Our taxes are way too high. Our spending is out of control. Our state’s finances are a total mess.
But it could get worse. If Congress can’t get its act together, Oklahoma taxpayers and residents of other red states across the country might help bail out Maryland with an enormous tax cut for our wealthiest residents.
That’s the way the state and local tax deduction works, better known as SALT. If you’re not familiar with SALT, it is basically a blue state tax scheme. It allows wealthier taxpayers to deduct what they pay in state and local taxes from their taxable federal income.
That might sound innocuous, or even appealing at first, since it decreases taxes for some people. Yes, cutting taxes is usually a good thing, but this is not your typical tax cut. It’s actually a scheme that has allowed certain states to boost taxes on their residents with the understanding that the federal government will shoulder much of that cost when taxpayers deduct their massive state tax bill from their federal income taxes.
This has effectively shifted the overall tax burden away from wealthy people in high tax states and onto working class people in lower tax states.
That’s why the 2017 Trump tax cuts – more formally, the Tax Cuts and Jobs Act – wisely placed a $10,000 cap on the SALT deduction, which helps to blunt its harmful impact.
But at the end of this year, most of the Trump tax cuts, including the SALT cap, are scheduled to expire. We can’t let that happen.
Congress needs to make sure the Trump tax cuts are locked in permanently. And part of that legislation must include keeping the SALT deduction capped. If the SALT cap disappears, it would provide a tax cut of almost $1 trillion, nearly 60% which would go to just five states: Maryland, Connecticut, California, New Jersey, and New York. People who make more than $200,000 would claim 93% of the tax benefit.
Not coincidentally, the states with the worst, least competitive tax systems in the country just so happen to be (descending order): Maryland, Connecticut, California, New Jersey, and New York. Allowing the SALT cap to disappear is essentially rewarding these states for their bad, anti-taxpayer policies.
Meanwhile, most residents of lower tax states would get peanuts. This means the overall burden of federal taxation would shift away from high-tax blue states and toward states like Oklahoma that have done a better job on taxes and spending.
There’s no other way of saying it: that’s incredibly unfair.
It comes down to this: lifting or removing the SALT cap would encourage lawmakers in Annapolis, Sacramento, Albany, and other capital cities to double down on their harmful policies. It will give them a free pass to spend even more and boost their tax rates even higher knowing full well that their higher state tax bills will effectively be passed along to federal taxpayers.
Already, these highly progressive states have shown a tremendous penchant for not just overtaxing their residents, but also overspending.
Just look at the eye-popping stats. On a per resident basis, California spends more than $10,500, Maryland spends nearly $11,000, and New York spends a little more than $11,000. Compare that to Oklahoma, with per-resident spending around $7,200. Or to fast-growing states like Florida and Texas that spend about half of what blue states are spending: $5,200 and $4,500 per resident, respectively.
As Congress debates Trump’s “One Big Beautiful Bill,” politicians from the high-tax, high-spending states are trying to significantly raise or even eliminate the SALT cap. They are raising a stink in Congress and threatening to tank the entire bill over the issue. While I understand their frustration, their ire is directed in the wrong direction. It should be targeted at the state lawmakers in Annapolis, Sacramento, Albany, Trenton, among other state capitals, who have allowed spending to reach such exorbitant levels and financed their excessive spending with ridiculous levels of taxation.
If those state lawmakers would do a better job at managing their states’ finances, there would be no need for a SALT deduction and no need to shift the federal tax burden onto the good people of Oklahoma and other red states.
For the benefit of red states, blue states, and the entire country, we should keep SALT tightly capped and force fiscal discipline on politicians who desperately need it.
In other words, Congress shouldn’t force Oklahomans to shoulder a larger share of federal taxes in order to deliver a massive tax cut for my millionaire neighbors in deep blue Maryland. They can afford their own crab cakes.
