{"id":2454581,"date":"2025-07-29T02:40:00","date_gmt":"2025-07-29T06:40:00","guid":{"rendered":"https:\/\/monetizemail.com\/magatoon\/?p=2454581"},"modified":"2025-07-29T06:53:37","modified_gmt":"2025-07-29T10:53:37","slug":"my-disagreement-with-john-tamny-on-salt-deductions","status":"publish","type":"post","link":"https:\/\/monetizemail.com\/magatoon\/2025\/07\/29\/my-disagreement-with-john-tamny-on-salt-deductions\/","title":{"rendered":"My Disagreement with John Tamny on SALT Deductions"},"content":{"rendered":"

In a recent essay, John Tamny, at RealClearMarkets<\/a> got rather SALTy. Worth reading.<\/p>\n

John (whom I know and like, and have hosted to give a talk to my big undergrad \u201cIntro to Capitalism<\/a>\u201d class at Duke) is taking issue with the claims I made<\/a> about state and local tax deductions (SALT) here, at AIER\u2019s The Daily Economy<\/em>.<\/p>\n

Now, John is a fine, smart man. But we really do disagree about this.\u00a0 Consider two points:<\/p>\n

First, John claims that the most important policy change needed is a substantial cut in federal spending.\u00a0 He\u2019s right about that, of course. But for some reason, he equates cutting taxes with cutting spending.<\/p>\n

As I have argued for years, starting when I sometimes got little policy pieces discussed by Rush Limbaugh<\/a>, US policy is \u201cDAFT\u201d<\/a> \u2014 Deficits Are Future Taxes. Since we are not cutting spending, a SALT deduction is a tax increase. The SALT deduction increases the deficit; deficits are future taxes, so SALT deductions are straightforward tax increases.<\/p>\n

I could see Tamny\u2019s point if there were a balanced budget requirement at the federal level. But since there isn\u2019t, SALT is a tax increase on everyone else<\/em>, because we have to pay for the increased deficit.<\/p>\n

Yes, the \u201ceveryone else\u201d includes people in the future, but that\u2019s even worse! Generations yet unborn are paying higher expected taxes so that Californians can subsidize state spending with lower federal taxes. There is simply no connection between a SALT deduction and a decrease in federal spending, but SALT deductions enable state governments to spend more, at the expense of the entire nation. SALT deductions enable spending increases at the state level, precisely because states have balanced budget requirements but the federal government does not.<\/p>\n

Second, I agree completely with Tamny\u2019s point that California is wealthy despite<\/em> its high government spending. But that\u2019s all the more reason to make California taxpayers bear the full burden of having legislators light their solar-powered cigars with hundred dollar bills. If Golden State citizens actually had to pay for the government they vote for, they might vote smarter. With the SALT deduction, California can slip by and keep spending, because a big part of their tax revenue is being subsidized by the hardworking citizens of Texas, and by future generations of taxpayers that are already burdened with having to pay John Tamny\u2019s Social Security.<\/p>\n

One more thing: Tamny called me a Keynesian.\u00a0 Now,\u00a0 Keynes drank scotch. I drink scotch. That doesn\u2019t make me a Keynesian.\u00a0 Keynes wanted to increase government spending; I want to decrease<\/em> it.\u00a0<\/p>\n

The fact is that deficits are future taxes, and SALT increases deficits. Given that the current debt is approaching $40 trillion (well over $100,000 per US citizen<\/a>!), increasing the deficit is moving the already egregious debt in the wrong direction. How much depends on your assumptions about growth, and on the exact form of the legislation. But according to the Committee for a Responsible Federal Budget<\/a>, raising the cap to only $20,000 would add between $150 and $200 billion over the next decade.\u00a0<\/p>\n

And that\u2019s the best<\/em> case scenario. If the cap structure now in the bill ($15,000 single\/$30,000 joint filers) goes through, the cost is half a trillion.\u00a0 And if the real hawks like John Tamny get their way, with the cap going up to $100,000 or more, the loss in tax revenue could top a trillion in the next ten years.<\/p>\n

These costs might be tolerable if there were some benefit. But all the cost savings go to the states that have irresponsible tax and spending policies. A recent study by David Ditch, of the Economic Policy Innovation Center<\/a>, makes the case starkly: California\u2019s state spending is nearly double the combined state budgets of Texas and Florida. That\u2019s in spite of the fact that Texas and Florida have 15 million more people. California, which does have (more or less) a balanced budget requirement<\/a>, can only get away with that kind of spending because citizens in Texas and Florida are making up for the federal tax losses!<\/p>\n

While it\u2019s hard to give an exact estimate, here is a table of the top five states, in terms of targeted benefits from the increased SALT deductions in the One Big Beautiful Bill Act (source: CRS <\/a>and Tax Policy Center<\/a>):<\/p>\n

Top Five States Most Affected by SALT Deduction Limits<\/strong><\/h3>\n
\n\n\n\n\n\n\n\n\n
Rank<\/strong><\/td>\n\u00a0 State<\/strong><\/td>\nWhy Affected<\/strong><\/td>\n<\/tr>\n
1<\/strong><\/td>\nNew York<\/strong><\/td>\nHigh state income taxes and property taxes; large number of high-income households; suburban and urban property owners hit hardest.<\/td>\n<\/tr>\n
2<\/strong><\/td>\nCalifornia<\/strong><\/td>\nHighest state income tax rates in the US; expensive real estate market leads to large property tax bills.<\/td>\n<\/tr>\n
3<\/strong><\/td>\nNew Jersey<\/strong><\/td>\nExtremely high property taxes; high-income suburbs around NYC heavily affected.<\/td>\n<\/tr>\n
4<\/strong><\/td>\nConnecticut<\/strong><\/td>\nHigh property taxes and state income taxes; large concentration of wealthy taxpayers.<\/td>\n<\/tr>\n
5<\/strong><\/td>\nMassachusetts<\/strong><\/td>\nHigh property values, significant state income tax; many affluent taxpayers in Greater Boston area.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n

Those are not Republican states; in fact, there is not even one Republican Senator from any of the five states that would benefit most.\u00a0 Why do people want to take money from honest people who earn it in Red states, and use it to fund government spending in the Heart of Blueness?<\/p>\n

All this means that increasing the SALT deductions has two effects, both bad:<\/p>\n

    \n
  1. There will be a substantial increase in the federal deficit, and a ballooning of the debt, all of which amounts to a tax increase (because DAFT). Raising SALT deductions is a big tax increase, on other states and on future generations.\u00a0<\/li>\n
  2. SALT excuses and covers for profligate and wasteful state government. The five biggest beneficiary states, disproportionately to the total benefit, subsidize wasteful and intrusive government. People are leaving California, New York, and the other high tax states. But not as fast as they would be moving if states bore the full costs of their bad decisions and spendthrift policies.\u00a0\u00a0<\/li>\n<\/ol>\n

    SALT defenders are living in the past. There is a long and embarrassing history of attempts to \u201cstarve the beast<\/a>\u201d by cutting taxes without cutting spending.\u00a0 But the US federal government, unlike the states (even California) now completely disregards any connection between revenues and spending<\/a>.<\/p>\n

    The beast doesn\u2019t starve; we never cut spending. And if we impose SALT deductions, we are actually raising<\/em> taxes on most Americans.<\/p><\/p>\n

    The post My Disagreement with John Tamny on SALT Deductions<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

    In a recent essay, John Tamny, at RealClearMarkets got rather SALTy. Worth reading. John (whom I know and like, and have hosted to give a talk to my big undergrad \u201cIntro to Capitalism\u201d class at Duke) is taking issue with the claims I made about state and local tax deductions (SALT) here, at AIER\u2019s The …<\/p>\n","protected":false},"author":90,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2454581","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2454581","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/90"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2454581"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2454581\/revisions"}],"predecessor-version":[{"id":2454582,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2454581\/revisions\/2454582"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2454581"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2454581"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2454581"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}