69 Am. U. L. Rev. 565 (2019).

* Barrall Family Professor of Tax Law & Policy, UCLA School of Law. For helpful comments on earlier drafts, the author would like to thank Ellen Aprill, Steve Bank, Howard Chernick, Andy Grewal, Daniel Hemel, Jason Oh, Katie Pratt, Darien Shanske, Larry Zelenak, Eric Zolt, and participants in workshops at Loyola Law School, UCLA School of Law, and the National Tax Association.

Among the most controversial changes in federal tax policy in recent years is the new limitation on the deductibility of state and local taxes—or SALT cap. Introduced as part of the Tax Cuts and Jobs Act of 2017, the SALT cap differentially burdens residents of high-tax “blue states,” prompting some lawmakers to characterize the cap as an act of “economic civil war.” In one of the opening salvos of this “war,” a handful of blue states turned to alternative devices for raising revenue through the use of tax credits for charitable donations to state-designated funds. This strategy, modeled on long-standing “red state” tax credits used to fund private school vouchers, is rooted in the government’s “power not to tax,” understood here as the power to conditionally refrain from imposing taxes in exchange for the taxpayer making some legislatively sanctioned outlay. The introduction of the SALT cap has given new significance to this power not to tax, encouraging state and local lawmakers to devise strategies for funding public goods without utilizing formal tax mechanisms. This Article explores and evaluates the structural features of the law that account for this new state of affairs, as well as the ongoing controversy regarding how best to address the basic discontinuity in the law’s treatment of formal taxation versus conditional reductions in taxation. It also provides a blueprint for an alternative federal tax framework based on the uniform treatment of “social contributions”—i.e., a broader category of outlays including both taxes paid to state and local governments as well as charitable gifts.