POINT: Let blue states have the SALT deduction, then make them pay their way

Alex Xenos, InsideSources.com on May 29, 2025

Published in Op Eds

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As Republicans work to advance their mega bill, the debate over the $10,000 cap on the federal deduction for state and local taxes (SALT) is again heating up. GOP lawmakers from high-tax blue states, facing pressure from constituents burdened by aggressive state and local tax regimes, have been lobbying President Donald Trump and Republican leadership to repeal the cap or raise it.

Last week, the House passed a bill increasing the cap to $40,000 for individuals earning up to $500,000, gradually decreasing for those with higher incomes. However, conservative critics argue that raising the cap would amount to a federal subsidy for profligate Democratic governance.

That was a view I once shared. And it’s not wrong, at least in the context of the decayed federal system we inhabit. The current debate is a symptom of a much larger problem.

What deserves conservative scrutiny is the entire framework of federal subsidies propping up state-level irresponsibility. Rather than defend the cap, conservatives should consider turning the SALT deduction into a tool — a wedge — to start restoring federalism. Thus, this moment presents an opportunity to help move the nation closer to how our federal system was initially supposed to function.

I would remove the cap altogether. A tax policy that allows for the full deductibility of state and local taxes could help shift the tax burden back to the states where it belongs. States would be incentivized to raise their revenue without increasing the burden on their residents. That could reduce the amount of money being funneled to Washington.

If states pick up more slack in governing, the federal government can — and should — begin to scale back correspondingly. If blue states want to pursue extravagant projects and progressive experiments, let them do so — but with their tax dollars.

Restoring the full SALT deduction could shift the political accountability for taxation away from Congress and back toward governors, mayors and state legislatures. Voters in New York and California would still feel the pinch, but the pinch would come from Albany and Sacramento. In that environment, voters may demand better governance from their officials. Or they might not. Either way, the federal government would be less involved in state governance, and the incentives for local self-government would be more substantial.

None of this matters if the federal government continues ignoring deficits. It should make it easier for fiscal hawks in Washington to push budget cuts. More responsibility must be put back on the states where it belongs and where it once was. Rebalancing the fiscal relationship between the states and the federal government isn’t just a question of efficiency; it’s a constitutional imperative. The federal government was never meant to equalize outcomes between states with vastly different economies, cultures and priorities.

For too long, conservatives have fought battles over tax policy without rethinking the deeper structure of federalism. We’ve tried to make Washington fairer. The answer is to make it smaller and to let the states rise or fall on their own merits. We must begin the long process of disentangling state budgets from the federal purse.

That means targeting federal aid to the states for reduction, considering those states that tax their residents the most and have chosen expansive spending agendas. In short, let high-tax states live within their means. Then, over time, we should dismantle all unnecessary subsidies and grants. The federal government should not be redistributing tax dollars from one state to another for local services that should be funded and managed locally.

The SALT deduction won’t fix our tax code. However, it could be used to help rebalance our constitutional order. And for conservatives, that should count for something. Conservatives are right to be skeptical of policies to benefit blue-state elites, but they shouldn’t overlook opportunities to restore accountability and shrink the federal footprint. The real fight isn’t just over deductions. It’s over dependency.

Washington can no longer afford to be the states’ Santa Claus. Let the states compete. Let them succeed or fail on their terms. And let the American people see clearly who’s delivering results.

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ABOUT THE WRITER

Alex Xenos is an attorney and writer. He wrote this for InsideSources.com.

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