Been There, Done That on “Making it Rain” in High Tax, Big Spending States


Been There Done ThatBeen There, Done That on “Making it Rain”
in High Tax, Big Spending States

Democrats in Congress representing high tax, big spending states like California are pushing for restoration of the State and Local Tax (SALT) Deduction in the budget reconciliation bill.  But restoring the full SALT Deduction would “make it rain” in these states – with taxpayers in low tax states paying higher taxes to facilitate tax cuts for high-income earners in these blue states and subsidize the reckless state tax and budget decisions.


California Has “Been There, Done That”

The SALT deduction encourages states like California and New York to spend more because high-income taxpayers in these states don’t really feel how much state overspending and overtaxing really costs them.

The nonpartisan Tax Foundation rankings show that California has the 5th highest state and local individual income tax collections per capita, the 6th-highest state and local tax burden, 3rd-worst business tax climate, and the highest state sales tax rate and state gasoline tax rate.

The PRI study “Making it Rain in California” found that the SALT cap has helped reduce the wealth transfer from taxpayers in low-tax states to high-income taxpayers in high-tax states, while improving tax code competitiveness.

While average tax rates on taxpayers earning more than $1.5 million annually went up thanks to the SALT cap, it enabled lower personal income taxes for nearly everyone else.

For example, married taxpayers filing jointly with an income of $200,000 living in California saw their average tax rate decline by 10.3 percent and their marginal tax rate decline by 4.0 under the SALT cap.  In low tax states like Indiana, the same taxpayers saw their average tax rate decline by 13.4 percent, and their marginal tax rate fall by 12.5 percent.

How The SALT Cap Transfers Wealth to High-Income Earners in California and New York

“The primary reason politicians like Schumer representing high-tax states want to restore a higher SALT deduction is because it enables higher state taxes and spending by offloading costs onto taxpayers in low-tax states . . . Now, for the first time, New York taxpayers are experiencing the full pain of high taxes and spending because they can’t write it all off.”

“Why Is Sen. Schumer Suddenly Decrying High Tax Rates?”, Wayne Winegarden, Real Clear Markets, 9/5/19

“Some want to reverse this cap and force low tax states to again pay for big spending in California, New York, and Illinois. That would be a mistake.  Taxpayers in high-tax states should demand that lawmakers reform anti-growth state tax codes and cut spending to make their economies more competitive.”

“New Study: State and Local Tax Deduction ‘Makes it Rain’ in California, Paid for by Taxpayers in Low Tax States,” Wayne Winegarden, 8/15/19

“Congress lowered taxes for millions of hard-working Californians.  It’s big spending state-lawmakers who raised taxes on Californians . . . Millions of Americans in every state benefited from the Tax Cuts and Jobs Act with a reduced tax burden . . . Only taxpayers in the super-rich highest tax bracket paid more.

“Sacramento, Not D.C., Is Responsible for California’s Unaffordable Tax Burden,” Wayne Winegarden, Orange County Register, 8/21/19

Read “Making it Rain in California:  How the State and Local Tax Deduction Fuels Tax and Spend State Budgeting, and How Capping It Saves Most U.S. Taxpayers”

Preserve SALT Cap to Keep in Place
Billions of Dollars in Broad-Based Tax Relief

According to the PRI study “Making it Rain in California,” the SALT cap enabled $651.5 billion on special-interest state tax breaks to be reallocated into broad-based, marginal tax rate relief.

Dr. Wayne Winegarden, PRI senior fellow in business and economics, argues that “capping the SALT deduction helped set in place billions of dollars in broad-based tax relief for the entire nation.”

“Relaxing or repealing it to fuel the unsustainable tax and spending demands of liberal politicians like Sen. Schumer in high-tax states,” Winegarden writes, “would be a great mistake and should be rejected.”



Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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