In a recent essay, John Tamny, at RealClearMarkets got rather SALTy. Worth reading.

John (whom I know and like, and have hosted to give a talk to my big undergrad “Intro to Capitalism” class at Duke) is taking issue with the claims I made about state and local tax deductions (SALT) here, at AIER’s The Daily Economy.

Now, John is a fine, smart man. But we really do disagree about this.  Consider two points:

First, John claims that the most important policy change needed is a substantial cut in federal spending.  He’s right about that, of course. But for some reason, he equates cutting taxes with cutting spending.

As I have argued for years, starting when I sometimes got little policy pieces discussed by Rush Limbaugh, US policy is “DAFT” — Deficits Are Future Taxes. Since we are not cutting spending, a SALT deduction is a tax increase. The SALT deduction increases the deficit; deficits are future taxes, so SALT deductions are straightforward tax increases.

I could see Tamny’s point if there were a balanced budget requirement at the federal level. But since there isn’t, SALT is a tax increase on everyone else, because we have to pay for the increased deficit.

Yes, the “everyone else” includes people in the future, but that’s even worse! Generations yet unborn are paying higher expected taxes so that Californians can subsidize state spending with lower federal taxes. There is simply no connection between a SALT deduction and a decrease in federal spending, but SALT deductions enable state governments to spend more, at the expense of the entire nation. SALT deductions enable spending increases at the state level, precisely because states have balanced budget requirements but the federal government does not.

Second, I agree completely with Tamny’s point that California is wealthy despite its high government spending. But that’s all the more reason to make California taxpayers bear the full burden of having legislators light their solar-powered cigars with hundred dollar bills. If Golden State citizens actually had to pay for the government they vote for, they might vote smarter. With the SALT deduction, California can slip by and keep spending, because a big part of their tax revenue is being subsidized by the hardworking citizens of Texas, and by future generations of taxpayers that are already burdened with having to pay John Tamny’s Social Security.

One more thing: Tamny called me a Keynesian.  Now,  Keynes drank scotch. I drink scotch. That doesn’t make me a Keynesian.  Keynes wanted to increase government spending; I want to decrease it. 

The fact is that deficits are future taxes, and SALT increases deficits. Given that the current debt is approaching $40 trillion (well over $100,000 per US citizen!), increasing the deficit is moving the already egregious debt in the wrong direction. How much depends on your assumptions about growth, and on the exact form of the legislation. But according to the Committee for a Responsible Federal Budget, raising the cap to only $20,000 would add between $150 and $200 billion over the next decade. 

And that’s the best case scenario. If the cap structure now in the bill ($15,000 single/$30,000 joint filers) goes through, the cost is half a trillion.  And if the real hawks like John Tamny get their way, with the cap going up to $100,000 or more, the loss in tax revenue could top a trillion in the next ten years.

These costs might be tolerable if there were some benefit. But all the cost savings go to the states that have irresponsible tax and spending policies. A recent study by David Ditch, of the Economic Policy Innovation Center, makes the case starkly: California’s state spending is nearly double the combined state budgets of Texas and Florida. That’s in spite of the fact that Texas and Florida have 15 million more people. California, which does have (more or less) a balanced budget requirement, can only get away with that kind of spending because citizens in Texas and Florida are making up for the federal tax losses!

While it’s hard to give an exact estimate, here is a table of the top five states, in terms of targeted benefits from the increased SALT deductions in the One Big Beautiful Bill Act (source: CRS and Tax Policy Center):

Top Five States Most Affected by SALT Deduction Limits

Those are not Republican states; in fact, there is not even one Republican Senator from any of the five states that would benefit most.  Why do people want to take money from honest people who earn it in Red states, and use it to fund government spending in the Heart of Blueness?

All this means that increasing the SALT deductions has two effects, both bad:

1. There will be a substantial increase in the federal deficit, and a ballooning of the debt, all of which amounts to a tax increase (because DAFT). Raising SALT deductions is a big tax increase, on other states and on future generations. 
2. SALT excuses and covers for profligate and wasteful state government. The five biggest beneficiary states, disproportionately to the total benefit, subsidize wasteful and intrusive government. People are leaving California, New York, and the other high tax states. But not as fast as they would be moving if states bore the full costs of their bad decisions and spendthrift policies.  

SALT defenders are living in the past. There is a long and embarrassing history of attempts to “starve the beast” by cutting taxes without cutting spending.  But the US federal government, unlike the states (even California) now completely disregards any connection between revenues and spending.

The beast doesn’t starve; we never cut spending. And if we impose SALT deductions, we are actually raising taxes on most Americans.

Last month, Australian writer Alistair Kitchen was detained by Customs and Border Protection (CPB) when he flew from Melbourne to Los Angeles. Agents interrogated him, intimidated him, and lied to try to get a confession out of him. Ultimately they denied him entry to the United States. Why? Because he had written articles that the Trump administration didn’t like. As the officer who interrogated him told him, “Look, we both know why you are here…It’s because of what you wrote online about the protests at Columbia University.”

It’s not just Kitchen. Last month the State Department issued a statement that they would be vetting visa applicants’ online presence in order to determine whether applicants were fit to enter the United States. When applying for three common types of visa (F, M, and J), applicants are “instructed to adjust the privacy settings on all of their social media profiles to ‘public.’” Apparently, the Trump administration is now choosing to turn visitors away from the US due to social media posts.

To be clear, neither the administration’s actions towards Kitchen nor its new policy of vetting visa applicants based on their online presence is illegal. Non-citizens have fewer protections than citizens when it comes to free speech, and the administration is at perfect liberty to punish visa applicants who say things online that the administration doesn’t like.

But commentators’ focus on the legality of the Trump administration’s actions is missing the forest for the trees. Just because the government can do something doesn’t mean that it should.

As we consider how to treat visa applicants, we should consider what kind of example we wish to set for the world. Do we still wish to be the shining city on the hill, a beacon of freedom and liberty for other countries? Do we wish to stand tall in our principled defense of free speech, and to show other countries by our example just how well freedom can work? Do we wish to honor the legacy of our Founding Fathers, who created the first country in the world that stood for freedom of speech as a bedrock principle, and whose shining example convinced country after country to grant its citizens their own freedoms?

Or do we wish to be the country that intimidates peaceful visa applicants because they wrote articles with which the Trump administration disagrees?

I’m not sure that we can be both.

Some critics might argue that it doesn’t matter how we treat visa applicants; after all, they’re not Americans, and they shouldn’t reasonably expect to receive the same rights and protections as citizens. A shining city on a hill can still keep out undesirables.

But again, this misses the broader point. As Brad Polumbo points out, Jordan Peterson has been a vocal critic of the United States’ foreign policy with regard to Ukraine. Imagine if the Biden administration had arrested Peterson, detained him, and revoked his visa for his criticism. That would be an international scandal, and it would suggest to the world that the Biden administration didn’t support free speech as a matter of principle. Kitchen’s example is very similar.

Then there’s the chilling effect of the state department’s new rules. In writing about his experience with CPB for The New Yorker, Kitchen says, “I fear that writing about this, and speaking to the media, as I have done, will trigger further reprisals from the U.S. government. I’m afraid that I will be banned for good, if I haven’t been already, or that the information on my phone, which I handed over to them, will be used against me.” 

When anyone, citizen or not, justifiably worries that speaking up about their treatment will lead to further punishment at the hands of a government, then we can hardly say that said government is standing up for the principle of free speech.

All of this is especially salient because the world is at a crossroads. More and more countries, even countries that voice nominal support for the principle of free speech, are leaning into censorship. In England, feminists have been charged with hate speech for insisting that there are biological differences between men and women. In Germany, you can be prosecuted for calling someone a “jerk” online. In France, a woman was arrested and threatened with a fine of 12,000 euros for insulting French President Emmanuel Macron.

The United States has tried to use its bully pulpit to encourage the rest of the world to recommit itself to the principle of free speech. Speaking in Munich in February, J.D. Vance took European leaders to task for retreating from “some of its [Europe’s] most fundamental values,” including a robust commitment to freedom of speech. But it’s hard to urge global leaders to commit to a value that your own administration isn’t committed to.

If the United States wants to reverse the spread of censorious policies across the globe, then it needs to lead by example. We should absolutely vet visa applicants and turn away those who represent genuine national security concerns. But when the Trump administration conflates writing op-eds with endangering national security, it tells the world that free speech isn’t a principle worth defending. That’s a notion with which our Founding Fathers disagreed strongly: as Thomas Jefferson wrote in 1786, “Our liberty depends on the freedom of the press, and that cannot be limited without being lost.”

Donald Trump is famously hostile to US trade deficits. He believes not only that these deficits harm the US economy, but also that they are clear evidence of foreigners’ economic mistreatment of Americans. Almost as famously, economists disagree with Mr. Trump. Responding to his countless complaints about trade deficits, economists have spilled oceans of ink — including at AIER — to explain that US trade deficits are not the problem that Mr. Trump believes them to be.

Yet despite economists repeatedly offering empirical evidence showing that trade deficits do not negatively affect employment, wages, economic growth, or any other measure of economic performance, Mr. Trump’s determination to end trade deficits is unshaken — and polls show that a majority of the public shares his concern with these deficits. This attitude is unfortunate, as the problem with the president’s war on trade deficits goes beyond its inconsistency with the empirical record; the problem includes its inconsistency with some of his own policy aspirations.

Earlier this month, Mr. Trump again emphasized his desire that the US dollar maintain its status as the global reserve currency. In addition, the White House boasts about the many additional investments that his policies are prompting multinational corporations to make in America. As a simple matter of economic logic, however, if foreign governments, firms, and private citizens continue to rely on US dollars as reserves, as well as if foreigners increase their investments in the US, Mr. Trump’s goal of eliminating US trade deficits becomes impossible to achieve.

Any dollars that foreigners hold as reserves, use to conduct international commercial transactions amongst themselves, or invest in America are unavailable to be spent on American exports. These uses of dollars thus result in US trade deficits. And the more intense are foreigners’ demands for dollars as reserves or to invest in America, the larger are these trade deficits.

It’s disturbing that the president is unaware of this necessary connection between US trade deficits and foreigners’ demand for dollars as a reserve currency or as an investment vehicle. He doesn’t realize that if US trade deficits are to be eliminated, foreigners must be persuaded, period after period, to spend on American exports all of the dollars that Americans send abroad as payment for US imports. Only then will the value of our exports equal the value of our imports. But the elimination of US trade deficits, by preventing all uses for dollars other than to purchase American exports, would also end the dollar’s run as a reserve currency, as well as reduce global investment in the American economy.

In short, Mr. Trump wants the impossible — namely, for foreigners simultaneously to use dollars for investment purposes, which include using them as a reserve currency, and to spend those very same dollars buying US exports. It can’t be done.

Mr. Trump might respond that he wants only the dollars currently serving as global reserves to continue to be used in that capacity. It’s only moving forward that he wants us Americans to export at least as much as we import. Were this to happen, it appears that US trade deficits would vanish while the dollars currently used abroad as reserves would remain in that role.

But this appearance is a mirage. US trade deficits will disappear only if America’s attractiveness as a destination for global investment funds falls relative to the attractiveness of other countries. If such a fall large enough to eliminate trade deficits were to occur, the dollar would not long remain in use as a reserve currency. For decades, non-Americans have eagerly used many of their dollars for purposes other than buying American exports. This eagerness is the consequence of the US economy being unusually entrepreneurial, dynamic, open, and stable. It’s an economy with abundant investment prospects and strong international trade ties. Because the only way to eliminate US trade deficits is to eliminate these unusually attractive features of America’s economy, eliminating US trade deficits would also eliminate foreigners’ demands to hold dollars as reserves.

The president is wise to want the dollar to continue to serve as the world’s reserve currency. He’s wise also to welcome foreign investment in America, although that investment should be what comes naturally on the market rather than what’s artificially ginned up by tariffs. But he’s unwise in failing to see that these desires are fundamentally incompatible with his longing to rid America of trade deficits. And trade policy that rests, as his now does, on such a fundamental inconsistency is destined to severely damage the American economy. 

Mr. Trump should end his trade war, welcome US trade deficits, and bask in the dollar’s ongoing role as the global reserve currency.

Let’s be honest, many people move to New York City to make money, not have it taken away. Since over half of NYC’s population isn’t even from New York, millions made the decision to move to this amazing and incredibly expensive city.

They knew it was expensive, and that life would be tough — NYC does not have a global reputation of glamor and grit for nothing — but they didn’t realize life would be this tough. The cost of living in NYC is 2.30 times the national average!

This frustration with the cost and difficulty of living has led many New Yorkers — especially young ones — to vote for Zohran Mamdani. Since Mamdani’s unexpected win in the Democratic primary, pundits have been scrambling to understand how and why a city that epitomizes the capitalist spirit could so enthusiastically embrace a socialist candidate.

The answer is far from simple, but at least in part it’s a response to the deep frustration born of living in a city where life is already difficult but made even harder by a bloated, inefficient local bureaucracy that drains the life out of its residents.

And it’s this bureaucracy that permeates almost every aspect of New Yorkers’ lives. Consider a few examples.

Renting in NYC is a nightmare of paperwork. Tenants must submit tax returns, proof of income, and wait weeks or months for approval. Brokers add fees — sometimes 15 percent of annual rent! — making the process even more frustrating.

While landlords in most cities require tenants to have a gross annual income of 36 times the rent, NYC landlords demand 40-50 times. The average one-bedroom apartment in Manhattan costs around $3,500 per month, significantly higher than the $1,200 to $1,500 typical in other major cities.

Public housing managed through the New York City Housing Authority (NYCHA) is home to 1 in 17 New Yorkers. Its maintenance is riddled with delays. Non-emergency repairs take an average of 65 days, and emergency repairs can take up to 24 hours. As of 2024, over 600,000 outstanding work orders remain, leaving tenants with broken elevators, mold, and leaking pipes — all of which have been compounded by a bribery scandal that took attention away from New Yorkers’ real problems.

The New York City Department of Buildings (DOB) takes an average of 3-4 months to process a standard building alteration permit. Compare this to Chicago’s Department of Buildings (not exactly known for its efficiency) which manages to issue many building permits the same day.

A 2023 audit revealed that NYC failed to process Supplemental Nutrition Assistance Program (SNAP) applications within the mandated 30-day period. Processing rates dropped below 40 percent for SNAP and 30 percent for cash assistance (under court order, the backlog has been mostly cleared). Low-income New Yorkers are left without support due to staffing shortages and increasing application volumes.

Food truck operators struggle with a complex regulatory system that limits the number of vendors allowed to operate. These restrictions led to the formation of a secondary market where basic food truck permits can cost tens of thousands of dollars, discouraging new entrepreneurs and hindering the growth of existing businesses.

Entrepreneurs trying to secure a business license must navigate various agencies like the Department of Consumer and Worker Protection (DCWP), which can take weeks for approval. Additional city fees also add to the financial burden on businesses. In contrast, Los Angeles issues business licenses in 4-7 days.

This bureaucratic nightmare is not just an inconvenience — it’s the root of the frustration that leads people to vote for a candidate like Mamdani. It is also a big reason why the city is struggling in many macro ways. 

New York City has been in a housing crisis for decades, unable to keep up with growing demand which drives away people and jobs and harms the tax base. The city is facing potential billions in budget gaps, it is experiencing financial challenges from housing asylum seekers, and is struggling with high crime rates. 

When the government is inefficient, corrupt, and costly, ideas like freezing rent, city-run grocery stores, and free buses start to sound a lot more appealing than working hard and hitting countless roadblocks. Out of frustration it seems, New Yorkers are doubling down on policies that exacerbate these problems from the start like rent control, price freezes, and state-owned grocery stores.

Many New Yorkers see voting for the status quo as endorsing a bloated government structure that’s designed more for self-preservation than for problem-solving.

The vote for Mamdani may not be about supporting socialism per se but about demanding that the system fail so that something can finally give. They hope that by burning down the current system, they can rebuild one that serves them better.

New Yorkers aren’t yearning for socialist utopia – they’re fighting to survive in a system that’s broken. In this sense, Mamdani’s rise is less about ideology and more about using a sledgehammer to break through the status quo.

Mamdani may represent the radical shift that many New Yorkers believe is needed to escape the bureaucratic quagmire and address the pervasive inequality they face every day. Whether that shift succeeds or fails at getting Mamdani elected is a question only time — and the electorate — can answer.

But one thing is for certain, the socialist policies Zohran Mamdani advocates have been tried throughout history and have shown themselves to be utter failures, time and time again.