As a Republican bill that would eliminate most of the state and local tax (SALT) deduction advances through Congress, it is prompting newfound concern from politicians and the media in high-tax states about the burdens their wealthy residents face. California governor Jerry Brown, who helped engineer a massive tax hike on his state’s richest residents in 2012, called the federal proposal to end the exemption for local taxes a “gross manipulation” of the tax code and an “attack” on his state—where 98 percent of households earning more than $1 million use the deduction (on average, claiming $462,000 in state and local taxes on their federal tax form). New York governor Andrew Cuomo labeled the reform a “scam,” though Democrats and Republicans have supported it over the years.
The New York Times, under a headline that urges readers to “take claims about the state and local deduction with a grain of salt,” rejected the principal Republican argument for eliminating the deduction: that it serves as a subsidy for high-tax states because it lets them keep their taxes high while giving their residents a break on federal taxes. Instead, the Times argued, states like New York send more money to Washington in taxes than they get back in federal spending, so residents deserve the federal deduction. “Saying Indiana subsidizes New York through the deduction ignores net revenue and spending,” the Times contends. Echoing that argument, Cuomo calls New York a “donor state” to the federal government.
Politicians from high-tax states like New York, California, and New Jersey have made this case for decades, dating back to when former New York senator Daniel Patrick Moynihan first began tracking taxes paid by residents of each state to Washington and comparing them with the amount of federal money flowing into each state. Others have continued Moynihan’s exercise, tracking these flows, but often in the most superficial ways, designed to create the illusion that some states are “dependent” on Washington because they get more than they send, while others are “donors” to the rest of the country.