by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In the summer issue of National Affairs, Joshua T. McCabe notes that some states have higher “fiscal capacities” than others, meaning they have richer residents and better economies and can thus raise more money through taxes — even with the exact same tax rates. As a solution, he proposes no-strings-attached federal grants to all states with below-average fiscal capacities, big enough to bring them halfway to the average, paid for by eliminating the state-and-local-tax deduction.
Obviously, there’s a political question here of whether the federal government should be doling out money to state governments not to achieve any concrete policy goal, but just to “equalize” states’ fiscal situations. But even if we set that aside, McCabe’s analysis falls short for two reasons: It doesn’t account for cost of living, and it doesn’t take a serious look at all the ways the federal government already does what he wants. Killing the state-and-local-tax deduction is a great idea, as it’s a subsidy for rich people in high-tax states, but this is the wrong way to spend the proceeds.