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.

Reader Discussion

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on July 20, 2018 at 10:54:19 am

No where in the Constitution did the States give up their sovereignty. The national government only has power to act on individuals on personal income taxes all other taxes are from tariff's or assessments on State governments. Take away the 16th amendment and the feds have no Constitutional power to tax individuals.

I think you need to re-read the Federalist.

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Jim Lewis
on July 20, 2018 at 14:15:50 pm

What is surprising is not that New York, New Jersey Connecticut, and Maryland filed such a ridiculous lawsuit but that California, Massachusetts, Seattle, Washington, DC, the local jurisdictions of Northern Virginia, Chicago and Cooke County, Illinois have not joined as co-plaintiffs. For decades these entities have suffered from two political addictions: 1) Democrat-induced SALT dependence brought on by the weaponization of tax laws so Democrats can buy votes and 2) the Democrat Party's habituation to the strategy of constitutional abuse, their resort to Article III judges in order to achieve political ends that are unattainable through Article I legislators.

The consequences for many of these jurisdictions are public finances in near-bankruptcy status , failed-state symptoms approaching those of Detroit and Venezuela and the utter politicization of the federal district and appellate courts which they control.

Filing a frivolous SALT lawsuit against the federal government in hopes of curing what is tantamount to a state and local opioid addiction is both a sign of utter desperation and compelling proof of abhorrent state and local governance.

So what else is new in Democrat Lala Land?

"Re-read the Federalist" indeed!

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Pukka Luftmensch
on July 20, 2018 at 17:29:44 pm

Hey, the States are free to tax anything they want - even that which one expects ought to be free as shown in this link. It seems NJ, no doubt upset at the loss of SALT tax benefits wants to tax WATER:


BTW: The States were never *sovereign*, look to the specific limitations on their powers per US constitution. Pretty clear that they were subordinate political units.
BTW 2: One cannot simply "take away" the 16th Amendment.

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Guttenburgs Press and Brewery
on July 23, 2018 at 10:17:11 am

Hey "opiod addiction"

Well the statists have a solution for THAT. I guess they can bring to bear their considerable forecasting skills and their "humane" prescriptions to finances as well - right?

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