Lies, Damned Lies, and SALT statistics

This is a Special Edition of Blank versus Blank. This post is the presentation of a single side of an issue. Because it is only one perspective, we call this a Blank Verse.

This Blank Verse is presented by David.

As the Tax Reform bill heads to a conference committee, now that a version of it has passed both the House and the Senate, one of the issues that has come up, and generated quite a bit of debate, is whether or not state and local taxes (SALT) should be able to be deducted from federal taxes.

Mark Twain popularized the quote, 'There are three kinds of lies: lies, damned lies, and statistics." The SALT exemption, and arguments for and against its elimination exemplify this sentiment perfectly. The SALT debate also illustrates that there are two sides to an argument, and both sides can be right.

Politicians in high, state-tax states want to keep the SALT exemption.  The argument they make is that their states provide more taxes to the federal government than they receive, so residents of their states should be able to deduct their SALT taxes.

But is that actually true? It depends on how you measure it.

It is true that more populous states pay more in federal taxes than those smaller states with less population. More people living in the state equals more people paying taxes. It is also true that people living in large, urban areas are wealthier, and therefore pay more in taxes than those in more rural areas.

But do they get less of their federal dollars returned? Do they get fewer services? Well, it gets a bit trickier to answer that question. There are many variables to take into account, and they aren't determined by whether a state leans blue or red.

Poorer states contribute less in taxes, and because they are poorer, they are more likely to receive money for programs that serve the poor. States that have military bases receive huge amounts of government funding, regardless of whether their SALT taxes are high or low.

Here's a nice, data-rich article describing various ways to run the numbers looking at the states as collective tax-paying entities:

Are Red States Tax Takers and Blue States Tax Makers? ~The Federalist, Kyle Sammin.

When the author breaks down the numbers by inter-governmental payments based on individual tax payments, he found that "against a national average of $1,935 in intergovernmental spending per American, red states receive just $1,879. Blue states get considerably more, at $2,124 per resident."

Which is a nice segue to a different way of evaluating the SALT exemption. Rather than running the numbers based on how much a state pays as a collective, how about comparing individual tax payers and their rates.

A Texan making $100,000 dollars a year doesn't get to deduct any SALT from his Federal taxes. Texas doesn't have a state income tax. So the Texan has to pay the entire federal-tax bill that comes his way. A New Yorker making $100,000, on the other hand, gets to deduct his rather large SALT bill from the federal taxes he pays. Based upon individual tax burdens, the Texan is paying much more to fund the federal government and all of its programs than the New Yorker. Is that fair?

As a Hoosier, I'm proud that my state legislators and governors have kept our tax burden low. But I find it unfair that folks in big-government blue states, that are making the same amount of money I am, are paying less than I am for federal programs and bureaucracy, some of which I don't support.

(As a side note, it was Democrat Evan Bayh who oversaw Indiana's largest tax cut during his tenure as governor. So taxes and tax cuts are not simply a Republican/Democrat issue.)

But income tax isn't the entire story either:

What are the Best and Worst States to Pay Taxes In? ~Investopedia, J.B. Maverick

I wish I had a dollar for every time I've heard a liberal say that this group or that group wasn't paying their fair share. I could retire. As I've tried to illustrate here, deciding what is a fair share depends largely on how you lay out the numbers. Do you count as part of a collective, or as an individual? Since we pay income taxes as individuals, and not as states, I believe anyone who tries to parse the statistics based on collective data, is being misleading. Or, as Mark Twain would say, lying.

Will the SALT exemption remain in place, or will it disappear in the tax bill's final form? It probably depends on which statistics get the most media support. Since most of the big-media headquarters are located in big cities located in states with high-tax rates, I'm going to guess the media will focus on statistics that make their states look like victims, even though individual citizens are not paying into federal programs at the same rate as their smaller, low-tax states.

Numbers don't lie. Or do they?