Starving the Beast: How the SALT Deduction Exposes Conservatives’ Economic Strategy

April 17, 2018

During last year’s tax debate, one particularly contentious issue involved the state and local tax deduction, commonly known as the SALT deduction. A mainstay of federal tax policy for decades, the SALT deduction allows individuals to deduct the taxes they pay to states and municipalities—such as property and state income taxes—from their federal taxes. While Republicans in Congress aimed to completely remove the deduction, the final bill capped the deduction at $10,000 per household, down from the unlimited deduction households could claim prior to passage of Trump’s tax law. While this is a major policy change in and of itself, it is important to see it as part of a broader conservative strategy often known as “starving the beast.” Starving the beast assumes that cutting revenue will eventually necessitate cuts to programs, thus reducing the size of government.

Under the new tax law, every dollar in taxes over the $10,000 threshold paid to state and local governments is paid directly by state residents, without the cushion of the SALT deduction. This makes it significantly more difficult to raise new revenue on the state and local level. Coupled with the potential effects of the change on property tax revenues, capping the SALT deduction creates a potentially damaging combination for states and municipalities.

This is especially concerning because of the balanced-budget requirements most states have built into their constitutions. These amendments mean that any new program that requires additional spending at the state level must be accompanied with an equivalent increase in revenue. Under the new tax code, individuals will bear more of the brunt of state and local tax increases, making them significantly harder to implement. Compounding this, potential declines in revenue under the new code will likely put pressure on states to either cut spending or raise revenue to balance their budgets. Cutting spending, always the easier option for legislators, will likely win out.

This last point is illustrative of the dangers of starving the beast. Starving the beast hinders progressive policy-making because it moves the debate away from the ideological issue of whether we should have a postal service or a public education system or a variety of other programs and services to a debate over budgets and affordability. Arguing for increases in revenue or deficit spending is viewed as the behavior of spendthrifts, ignoring the fact that the programs that necessitate spending serve an important societal purpose. As a society, we deserve to have a debate over the merits of progressive programs and policy without having to presuppose a cash-strapped government. Starving the beast makes that incredibly difficult.

In the end, it is likely that the impact of the capping of the SALT deduction itself will not be particularly dire. However, taken in conjunction with other small changes to the tax code on the state and federal level, its effect is magnified. A “starving the beast” strategy is not designed to be carried out in one fell swoop. Instead, it takes the form of a number of smaller initiatives. It is visible in the requirement that the United States Postal Service pre-fund pensions, much of the debate over the crisis in public education, and a variety of other issues in American politics and society at large. As progressives, we owe it to ourselves to resist these sorts of changes and to see them as part of a broader political strategy that is built to make enacting the programs we care about more difficult or politically impossible. To view them as fundamentally innocuous is to subject progressive policy to a death by a thousand cuts.