In the ongoing national debate over the state and local tax or SALT deduction cap, a critical truth has been overlooked. The cap itself is not the problem — the problem is the punishing tax regimes in states like New York and California.
The outcry against the low $10,000 SALT deduction limit, imposed under the 2017 Tax Cuts and Jobs Act, is loudest in the states where taxes are highest. These are also states where the political class has become increasingly comfortable pushing ever-larger budgets, relying on a relatively small pool of high earners to bear the financial burden of their spending.
Prior to 2017, the unlimited SALT deduction effectively allowed wealthy residents of these high-tax states to write off a big portion of their state tax bills on their federal returns. In other words, federal taxpayers in fiscally responsible states were subsidizing the excesses of states that refused to rein in their own tax-and-spend habits.
Before the cap, New Yorkers making $500,000 could deduct tens of thousands of dollars in state and local taxes from federal taxable income, effectively shifting their local tax pain to the rest of the nation. That’s not tax fairness — that’s nationalized bailout-by-deduction.
Critics of the cap say it unfairly penalizes the middle class in high-tax states. But most middle-class families don’t pay more than $10,000 in state and local taxes anyway. The people howling loudest are usually wealthier taxpayers — and, frankly, local politicians who have built their empires on unsustainable budgets, union favors and bloated public programs.
Rather than advocate for a repeal of the cap, leaders in New York and California should take a hard look in the mirror. The real injustice is not that residents of these states can’t deduct all their taxes but that they’re being taxed so heavily in the first place.
The SALT cap was a wake-up call, signaling that the era of states quietly exporting the consequences of poor fiscal governance to the rest of the country is over. The federal government is not a co-signer on every state’s bad decisions. If a state wants to maintain generous entitlements, massive infrastructure projects and expansive bureaucracies, it needs to fund these with its own resources, without expecting red-state America to contribute through federal tax relief.
Calls to repeal the SALT cap are little more than a demand to reinstate a subsidy for irresponsibility. And let’s be clear — the cap doesn’t prevent any state from taxing its citizens. It just says the rest of us won’t help you cover the bill anymore.
There’s a deeper philosophical point at stake, too. The SALT cap restores a degree of accountability in federalism. If voters in a state are unhappy with their tax burden, they should direct their anger at Albany or Sacramento, not Washington. Local governance means local responsibility.
In short, the solution is not to lift the SALT cap. It’s for high-tax states to lower their taxes. Until that happens, don’t ask the rest of us to carry your water.
Joe Palaggi is a retired executive and author living in New York State. His writing explores the intersections of economics, policy and cultural change.
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