Under the new tax bill, the California Franchise Tax Board – the state agency that collects income and corporate taxes – reports that one million homeowners sent an additional $ 12 billion to Washington in 2018. This is how SALT made California a super donor.
Virginia taxpayers ranked fifth in 2017 using the SALT Deduction.
Politically, the SALT cap is the catalyst for an even stronger blue / red state antagonism, as it facilitates this redistribution of wealth in the most cynical way. Every GOP US Senator – from the most heavily dependent states – voted for the tax cap, while Democratic Senators from the blue state voted against the legislation. These senators understood that the upper limit was a zero-sum economy game for their constituents and would trigger an even bigger economic slump for dependent states. The attorneys general of New York, New Jersey, Connecticut, and Maryland filed a federal lawsuit against the constitutionality of SALT in July 2018, but a federal judge dismissed the lawsuit last October.
These large capital transfers also negatively affect dependent states to shape the type of economic development that reduces their dependence on generosity on richer states.
This analysis raises an interesting question: Why are some states super donors while others remain dependent on the federal dole? In my Spring 2019 public administration class, students investigated why Amazon decided in 2018 to build a smaller headquarters in Nashville instead of Louisville. These are twin cities in dependent states.