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Post-Modern Federalism: SALT That Away

What have I done with my life, that federalism never leaves me alone? In the course of my otherwise blissful vacation in Germany, Britain continued to agonize over Brexit: on what terms that the EU will never accept will we leave? (Amidst the contretemps Prime Minister May called Ikea and got herself a new cabinet.) The great Land of Bavaria—technically, part of Germany—precipitated a near-collapse of Mrs. Merkel’s government over the EU’s immigration policies, which permit refugees from non-EU countries to roam the Continent in search of the most hospitable forum. (Bottom line solution: Bavaria will process migrants and asylum seekers in conformity with EU and German law, provided they wear Lederhosen and pronounce Bayern Muenchen without inflection. Or play for the club.)

Say this much for Britain and Bavaria: the EU is an institutional project whose protagonists, for all their quasi-constitutional pretensions, cannot even conceive of rules that actually bind them. The rules just bind the locals; and when the rules stop making sense the EU makes up some more. To the extent that member-states rebel against that “ever-closer union,” they kind of have a point. Back in the U.S. of A state officials don’t have that excuse; and they’re not so innocent, either.

Four states (New York, New Jersey Connecticut, and Maryland) have sued the feds, claiming that the 2017 tax reform is unconstitutional because it limits taxpayers’ ability to deduct state and local taxes (SALT) from their federal taxes. The $10,000 cap on the SALT deduction will “hobbl[e] the [states’] sovereign authority to make policy decisions without federal interference.”

Where did these people go to law school—Yale? The “sovereign authority” ship sailed way back in 1789. To expound on the painfully obvious: if there is any fixed star in our constitutional universe, it’s that the national government acts on individuals, not states; and states can’t interpose themselves. The feds’ authority to tax is effectively unlimited, save for textually specified limitations (e.g., no tax on exports from any state). Conversely, states can tax their own citizens to their hearts’ content, even at the price of “hobbling” the federal government’s preferred policies. The power to tax is the concurrent power par excellence. It may be inconvenient, but it’s the foundation of our federalism. Go read The Federalist.

The complainants’ press releases are yet more unhinged than the lawsuit itself. New Jersey Attorney General Gurbir Grewal claimed that the federal government “went after these states deliberately” in crafting the SALT deductions cap. Okay: on what theory is this unconstitutional? Perhaps there’s some Fourteenth Amendment protection for discrete and insular states?  (Do not put this in the federal complaint. It was a joke.)

Barbara Underwood, New York’s Attorney General, proclaimed that the tax law resulted from a “hyper-partisan and rushed process” that will disproportionately harm taxpayers in the four states. Well: “rushed” is a funny adjective for a long-overdue reform, and the hyper-partisanship ran both ways. The core of the tax reform was a reduction of corporate tax rates, along with measures to facilitate the re-patriation of corporate foreign income. The GOP would have dropped the SALT limits in a heartbeat in exchange for Democrats’ support for those common-sense measures, which numerous Democrats had embraced in the past. But the Republicans couldn’t find a single vote among the Dems, and so they whacked them. That’s politics.

Connecticut Governor Dan Malloy said his state’s residents stand to lose $10 billion in SALT deductions and moped that 2017 tax reform gave “massive” handouts to the wealthiest one percent at the expense of middle-class taxpayers. Do the math, Governor: the one percenters are the only ones who suffer from the SALT deduction limits (and most of them have long fled the Nutcase State on account of its confiscatory policies). Whose side are you on?

It’s way too late to insist that our elected officials can’t just make up stuff. But there ought to remain a difference between a tweet and a federal lawsuit.

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