Under the new tax law, the California Franchise Tax Board — the state agency that collects personal and corporate income tax — reports that in 2018 one million property owners sent an additional $12 billion to Washington. Thus, SALT made California a super donor.
Virginia taxpayers ranked fifth in utilization of the SALT deduction in 2017.
Politically, the SALT limitation is the catalyst for even greater blue/red state antagonism because it facilitates this redistribution of wealth in the most cynical manner. Every GOP U.S. senator — from the most dependent states — voted for the tax cap while blue-state Democratic senators voted against the legislation. These senators understood the cap constituted a zero-sum economic game for their constituents and would trigger an even greater economic windfall for dependent states. The attorneys general of New York, New Jersey, Connecticut and Maryland filed a federal lawsuit in July 2018 challenging the constitutionality of SALT but a federal judge dismissed the suit this past October.
These large wealth transfers also create a disincentive for dependent states to fashion the type of economic development that will reduce their dependence on largesse from wealthier 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 researched why Amazon, in 2018, decided to place a smaller HQ in Nashville instead of Louisville? These are peer cities in dependent states.