A recent study published by the Cato Institute suggests the new GOP tax reform will add pressure to state governments with high taxes. Among the numerous reforms in the recent Republican-backed tax law is a $10,000 cap on state and local tax (SALT) deductions. Before the tax reforms, there was no limit to the amount of state and local taxes people could deduct from their federal taxes. The study suggests that since the SALT deduction cap went into effect, states with higher tax rates have experienced higher out-migration rates. Understanding why this out-migration exists and what it means for state and local tax policy first requires an understanding of some public finance theory. Unlike goods and services produced by private business, though, determining the “price” for government services is not straightforward. A restaurant can look at a balance sheet and find when a price is too high for its burgers or when it can charge more for fries. A state cannot so easily isolate when...