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I don't see why state taxes should be federally deductible to begin with. Two families both make $250,000 a year. One is in New York and one is in Texas. The

I don't see why state taxes should be federally deductible to begin with. Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes. If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions.

eli 9y ago
Taxes aren't based on how much you benefit from government. Progressive tax rates make sense because the wealthy can afford to pay a larger share of their paycheck to support shared society. Not because they necessarily derive more benefits than the middle class. If we taxed people based on the benefits they receive from the government, then the homeless would pay a fortune.
- AlexandrB 9y ago
  > If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune. This is a comical simplification. The public and legal infrastructure in America overwhelmingly helps companies and investors make money. Where would UPS be without public roads? Where would Warren Buffet be without a stable legal framework for investment? That's not to mention the military spending that secures all of these fortunes against foreign aggression. To claim that the poor disproportionately benefit from government spending is missing the forest for the trees.
  - eli 9y ago
    I think I phrased that poorly. My point is that how much the government spends "on you" is not relevant to what your income tax rate should be.
- cannonedhamster 9y ago
  > If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune. This is provably and patently false. Homeless people don't have their good protected by the police, don't get fire protection, don't drive, don't get deductions for businesses, don't get inheritance from their wealthy, millionaire parents, don't get lobbying influence. The entire system is set up to the benefit the rich with a few social stability benefits for the poor, which in turn keep them from uprising and storming the gates of the wealthy.
  - eli 9y ago
    My point was that we are not taxed based on the benefits we consume (if we were they'd be fees not income taxes). I did not mean to imply the homeless have it easy.
    - cannonedhamster 9y ago
      I'm sorry I must not have been clear. My point wasn't that you were saying the homeless had it easy, my point was that the homeless cannot use the system because the benefits of the system belong to those who already have money.
seibelj 9y ago
Yes, liberals love high taxes when it hits someone but themselves. No one likes paying taxes.
- sundaeofshock 9y ago
  I don’t mind paying higher taxes if society as a whole benefits. The good people of California vote for taxe increases all the time for things like better schools or improved infrastructure. If my taxes were going up to pay for something like single payer, I wouldn’t complain for one minute. However, in this instance, my taxes are going up to increase Ivanka Trump’s inheritance when that stuttering idiot father of hers dies. That’s some bullshit.
vostok 9y ago
Two questions: ---- 1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not? ---- 2. How do you feel about the mortgage interest deduction? A very similar question could be asked. Two families both make $250,000 a year. One took out a $750k mortgage and one took out a $300k mortgage. Why should the second family carry more of federal tax burden than the first? I don't have the right answer, but it's something to consider.
- ghouse 9y ago
  Two separate issues -- State and Local Taxes (SALT) are income, property and other taxes collected at the non-federal level. They have been deductible since the creation of the federal income tax. In part, because the federal government recognizes that resources are more efficiently allocated locally. And that is one reason why higher taxed states pay more into the federal government's budget than they receive in benefits. [1] The Mortgage Interest Deduction is simply a wealth transfer from people who don't own homes to people who do own homes. [1] https://www.theatlantic.com/business/archive/2014/05/which-states-are-givers-and-which-are-takers/361668/ https://www.theatlantic.com/business/archive/2014/05/which-s...
  - dv_dt 9y ago
    The mortgage interest deduction is a way for home owner/occupants to get cost parity vs landlords who could own the exact same property at a lower cost because the interest of a loan is a business expense. Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms.
    - dragonwriter 9y ago
      > Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms. Morw to the point, normal homeowners who have trouble with the setup cost of such an arrangement would pay higher taxes to subsidize the rich, who do not have trouble with the cost of setting up such a tax avoidance scheme.
ghouse 9y ago
> Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes. New York gets about $0.80 for every $1 of taxes paid. Texas gets about $1.50. [1] [1] https://www.theatlantic.com/business/archive/2014/05/which-states-are-givers-and-which-are-takers/361668/ https://www.theatlantic.com/business/archive/2014/05/which-s...
- TheAdamAndChe 9y ago
  Both states still recieve the same benefits from the federal government, it's mostly just demographic and economic differences that cause different states to receive different amounts of aid. Or do you really think West Virginians, who are mostly poor, should receive exactly the amount as New York, who is much more rich overall?
  - AFNobody 9y ago
    > Both states still recieve the same benefits from the federal government, it's mostly just demographic and economic differences that cause different states to receive different amounts of aid. Or do you really think West Virginians, who are mostly poor, should receive exactly the amount as New York, who is much more rich overall? That isn't correct. Pork spending and state-targeted spending to bribe lawmakers has been a traditional political activity since the founding of the US.
  - hcknwscommenter 9y ago
    You think it's just an accident that the rich states are high tax? No, the rich states have done much more to invest in education, safety nets, and regulation (work place safety, environment, police activity, etc.). That is why they have better economies. This tax bill just takes a look at all that investment and says: nope.
    - SauciestGNU 9y ago
      What's worse is that it actively sabotages responsible governance so rural and red state voters can get their revenge for being left behind.
dmode 9y ago
You can make the same argument about every single deduction. Texas family makes large donations to Christian churches. Why does a secular family in blue state subsidize that deduction ? Texas has higher property taxes ? Why does a California family with low property taxes subsidize that ? Texas did not expand Medicaid. Which means an average citizen can have higher medical spending ? Why does another state with expanded Medicaid subsidize that deduction ? I can keep going on the myriad of all other deductions. Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction.
- meritt 9y ago
  Tax payments which directly fund public schools (SALT) are no longer deductible but they added the ability for private school tuition to be deductible. This is going to have dire consequences for America's public school system.
  - deleted 9y ago
    [deleted]
- BeetleB 9y ago
  >You can make the same argument about every single deduction. And there's a good reason to eliminate most deductions. A lot of deductions complicate the tax code, and many likely exist to create loopholes by which people can avoid taxes. The purpose of a deduction usually is to promote a certain type of activity (buying homes, giving in charity). >Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction. While it may be politically motivated, I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable. So it's a bit of both.
  - klipt 9y ago
    > I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable. The GOP house Ways and Means head is from Texas which is a red state, relies heavily on property taxes and has no income tax. Coincidence? I think not.
dv_dt 9y ago
You have a very wrong assumption there. Those blue states were already paying more in federal taxes than they were taking in spending. Families in red states already carried less federal tax burden... This is all a crazy moot discussion anyway, because it's not even a balanced cut - its a cut that put the whole nation into a huge deficit while increasing taxes on labor-based incomes. So some already very wealthy capital owners are getting a very massive transfer.
munk-a 9y ago
Howdy, I'm a progressive! This is actually the one portion of the tax cut that I'd like to see retained... but I am really struggling as to why they wanted to remove the SALT exemption except to punish blue states. The party of states rights just removed the ability for individual states to try and innovate on budgetary matters and optimize spending into certain sectors of their economy they find particularly relevant - repealing this is a federalist policy which doesn't really meld with their messaging.
AFNobody 9y ago
> Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes. This assertion isn't true. Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart. https://taxfoundation.org/federal-taxes-paid-vs-federal-spending-received-state-1981-2005/ https://taxfoundation.org/federal-taxes-paid-vs-federal-spen... 5 of 24 years (1981-2005) CA has received less. And if you look up the scattering (but less concentrated) stats from 2005-2017, CA has been getting less than 80% of its money back from the Federal government. So its really 31 of the past 36 years that CA has been drained to help red states. https://taxfoundation.org/states-rely-most-federal-aid/ https://taxfoundation.org/states-rely-most-federal-aid/ > If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions. That is a strawman. Progressive taxation has nothing to do with aggregate wealth and everything to do with individual wealth.
- creaghpatr 9y ago
  >Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart. Much of that funding goes to subsidies (farming, energy, etc) for which the whole country enjoys the benefits, if not proportionally. A state like SC that has a disproportionate amount of military bases is going to receive far more per capita government funds, though the local SC taxpayers only get marginally more benefit than the rest of the country. That's not to say you are wrong that rural states get better de facto tax treatment than urban-focused states but it's a bit more intertwined than it sounds.
  - AFNobody 9y ago
    > local SC taxpayers only get marginally more benefit than the rest of the country. I wouldn't agree its marginally more benefit. Those bases being shut down would crush SC's economy within 50 miles of every base. Economically, they enjoy 100% of the benefit and pay less than 5% of the costs. The US is not, in any real sense, threatened militarily that I benefit from a large defense budget. Similar is true of food and energy subsidies. They have strategic value but they don't benefit me economically. There is a reason food and energy imports are still competitive despite the subsidies. The benefits of what you mention is it helps broaden the US's foreign policy options, not actual economic value to the average American.
shagmin 9y ago
I like the other replies, but I'd like to add something that I haven't seen discussed much. The median income in New York and California is probably much higher compared to any random flyover red state. Your average household in NY and CA is going to be at a higher marginal tax rate than say Nebraska. I haven't done the math, but I'd suspect the deduction flattens this difference to some extent.
dragonwriter 9y ago
> I don't see why state taxes should be federally deductible to begin with. The same reason legitimate business expenses (including, of course, state and local taxes paid by businesses, which are not affected by this reform) should be and are, and the same reason lots of personal expenses (some of which are, some of which are not currently) should be: expenses which are essential prerequisites to or consequence of earning income should be netted against income before taxing it. My state and local income, property, and sales tax are the support payments for the physical and social infrastructure that allows me to earn the income I do. With the federal deduction (and assuming state taxes with a marginal rate below unity), it's in my interest to engage politically to optimize for my net return before federal taxes; without the federal deduction, it becomes worthwhile to sacrifice income (before and after) state taxes for lower state taxes, so long as the reduced federal tax cost of the lower pre-state-tax income is enough to offset the reduced net-of-state-tax-but-before-federal-tax income. This encourages producing less market value when the net after state taxes is equal, encouraging economic contraction. For illustration, suppose, for simplicity, a federal flat marginal tax rate of 30% percent, and the ability to make $100K with a state tax rate of 10% or $94K with a state tax rate of 5%, and no other deductions. Ignoring federal tax, the optimum choice is to choose the $100K income with the 10% tax: it provides an $90K net (of state taxes) income, compared to $89.3K in the lower-base-pay regime. If you deduct state taxes from federal taxes, the incentives are unchanged, the net becomes $63K vs. $62.51 with the high-income, high-tax choice providing the higher net income. But if you don't deduct the state taxes, the incentives are flipped: producing less market value even after the cost of local infrastructure becomes preferable, with the net being $60K vs. $61.10K. Supporters of this proposal say it punishes people in high-tax states for bad political decisions; but the math is that it punishes them for good political decisions—for choosing increased taxes when the increase in market value produced that those taxes enable is greater than the value of the taxes.
ctdonath 9y ago
I don't see why state taxes wouldn't be federally deductible. Roughly: if I work 6 hours, I have to work an additional hour a day just to earn money to give to the state; you're suggesting I should work an additional 15 minutes to earn money to give to the feds just because I earned the money to give to the state. Absolutely I shouldn't be paying taxes on money earned just to pay taxes. It's not like I'm "shielding my earnings", because those earnings are earned specifically to get confiscated - you want me to earn more just because someone else took my money.
- smsm42 9y ago
  With the same logic, every expense should be deducted. If I work additional hour to give money to the landlord/clothes store/pub owner, why should I work additional 15 minutes to give money to the feds just because I earned money to give to the landlord/clothes store/pub owner? Because tax is charged on the income, not on money left in your pocket after paying everybody else. That's why it is income tax, not wealth tax or savings tax or any other tax.
  - ctdonath 9y ago
    Taxes are fundamentally different from other expenses. I'm not opting to purchase a service (or not, just saving the money) when paying taxes, I'm facing the implication of a gun to my head (the ultimate enforcement of government power). No other expense comes directly from simply how much I earn, and is not compulsory based thereon. If there's going to be deductions at all, the first should be taxes paid to other levels of gov't.
    - smsm42 9y ago
      I do not see how compulsory nature of the expense matters in this particular case. You need to eat to live - should food expenses be deducted? What if you're sick and need to pay for medicine - should that be deducted? You need to be clothed to go on the street - should clothing expenses be deducted? You can find argument for many of those, but ultimately the decision is arbitrary based on preferred policy by state. If the state police would favor improving the clothing situation of the population - you may very well get clothes deduction. Depending on what the government wants to promote or suppress, you may get various policy deductions.

eli 9y ago

Taxes aren't based on how much you benefit from government. Progressive tax rates make sense because the wealthy can afford to pay a larger share of their paycheck to support shared society. Not because they necessarily derive more benefits than the middle class. If we taxed people based on the benefits they receive from the government, then the homeless would pay a fortune.

AlexandrB 9y ago
> If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune. This is a comical simplification. The public and legal infrastructure in America overwhelmingly helps companies and investors make money. Where would UPS be without public roads? Where would Warren Buffet be without a stable legal framework for investment? That's not to mention the military spending that secures all of these fortunes against foreign aggression. To claim that the poor disproportionately benefit from government spending is missing the forest for the trees.
- eli 9y ago
  I think I phrased that poorly. My point is that how much the government spends "on you" is not relevant to what your income tax rate should be.
cannonedhamster 9y ago
> If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune. This is provably and patently false. Homeless people don't have their good protected by the police, don't get fire protection, don't drive, don't get deductions for businesses, don't get inheritance from their wealthy, millionaire parents, don't get lobbying influence. The entire system is set up to the benefit the rich with a few social stability benefits for the poor, which in turn keep them from uprising and storming the gates of the wealthy.
- eli 9y ago
  My point was that we are not taxed based on the benefits we consume (if we were they'd be fees not income taxes). I did not mean to imply the homeless have it easy.
  - cannonedhamster 9y ago
    I'm sorry I must not have been clear. My point wasn't that you were saying the homeless had it easy, my point was that the homeless cannot use the system because the benefits of the system belong to those who already have money.

seibelj 9y ago

Yes, liberals love high taxes when it hits someone but themselves. No one likes paying taxes.

sundaeofshock 9y ago
I don’t mind paying higher taxes if society as a whole benefits. The good people of California vote for taxe increases all the time for things like better schools or improved infrastructure. If my taxes were going up to pay for something like single payer, I wouldn’t complain for one minute. However, in this instance, my taxes are going up to increase Ivanka Trump’s inheritance when that stuttering idiot father of hers dies. That’s some bullshit.

vostok 9y ago

Two questions: ---- 1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not? ---- 2. How do you feel about the mortgage interest deduction? A very similar question could be asked. Two families both make $250,000 a year. One took out a $750k mortgage and one took out a $300k mortgage. Why should the second family carry more of federal tax burden than the first? I don't have the right answer, but it's something to consider.

ghouse 9y ago
Two separate issues -- State and Local Taxes (SALT) are income, property and other taxes collected at the non-federal level. They have been deductible since the creation of the federal income tax. In part, because the federal government recognizes that resources are more efficiently allocated locally. And that is one reason why higher taxed states pay more into the federal government's budget than they receive in benefits. [1] The Mortgage Interest Deduction is simply a wealth transfer from people who don't own homes to people who do own homes. [1] https://www.theatlantic.com/business/archive/2014/05/which-states-are-givers-and-which-are-takers/361668/ https://www.theatlantic.com/business/archive/2014/05/which-s...
- dv_dt 9y ago
  The mortgage interest deduction is a way for home owner/occupants to get cost parity vs landlords who could own the exact same property at a lower cost because the interest of a loan is a business expense. Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms.
  - dragonwriter 9y ago
    > Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms. Morw to the point, normal homeowners who have trouble with the setup cost of such an arrangement would pay higher taxes to subsidize the rich, who do not have trouble with the cost of setting up such a tax avoidance scheme.

ghouse 9y ago

> Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes. New York gets about $0.80 for every $1 of taxes paid. Texas gets about $1.50. [1] [1] https://www.theatlantic.com/business/archive/2014/05/which-states-are-givers-and-which-are-takers/361668/ https://www.theatlantic.com/business/archive/2014/05/which-s...

TheAdamAndChe 9y ago
Both states still recieve the same benefits from the federal government, it's mostly just demographic and economic differences that cause different states to receive different amounts of aid. Or do you really think West Virginians, who are mostly poor, should receive exactly the amount as New York, who is much more rich overall?
- AFNobody 9y ago
  > Both states still recieve the same benefits from the federal government, it's mostly just demographic and economic differences that cause different states to receive different amounts of aid. Or do you really think West Virginians, who are mostly poor, should receive exactly the amount as New York, who is much more rich overall? That isn't correct. Pork spending and state-targeted spending to bribe lawmakers has been a traditional political activity since the founding of the US.
- hcknwscommenter 9y ago
  You think it's just an accident that the rich states are high tax? No, the rich states have done much more to invest in education, safety nets, and regulation (work place safety, environment, police activity, etc.). That is why they have better economies. This tax bill just takes a look at all that investment and says: nope.
  - SauciestGNU 9y ago
    What's worse is that it actively sabotages responsible governance so rural and red state voters can get their revenge for being left behind.

dmode 9y ago

You can make the same argument about every single deduction. Texas family makes large donations to Christian churches. Why does a secular family in blue state subsidize that deduction ? Texas has higher property taxes ? Why does a California family with low property taxes subsidize that ? Texas did not expand Medicaid. Which means an average citizen can have higher medical spending ? Why does another state with expanded Medicaid subsidize that deduction ? I can keep going on the myriad of all other deductions. Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction.

meritt 9y ago
Tax payments which directly fund public schools (SALT) are no longer deductible but they added the ability for private school tuition to be deductible. This is going to have dire consequences for America's public school system.
- deleted 9y ago
  [deleted]
BeetleB 9y ago
>You can make the same argument about every single deduction. And there's a good reason to eliminate most deductions. A lot of deductions complicate the tax code, and many likely exist to create loopholes by which people can avoid taxes. The purpose of a deduction usually is to promote a certain type of activity (buying homes, giving in charity). >Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction. While it may be politically motivated, I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable. So it's a bit of both.
- klipt 9y ago
  > I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable. The GOP house Ways and Means head is from Texas which is a red state, relies heavily on property taxes and has no income tax. Coincidence? I think not.

dv_dt 9y ago

You have a very wrong assumption there. Those blue states were already paying more in federal taxes than they were taking in spending. Families in red states already carried less federal tax burden... This is all a crazy moot discussion anyway, because it's not even a balanced cut - its a cut that put the whole nation into a huge deficit while increasing taxes on labor-based incomes. So some already very wealthy capital owners are getting a very massive transfer.

munk-a 9y ago

Howdy, I'm a progressive! This is actually the one portion of the tax cut that I'd like to see retained... but I am really struggling as to why they wanted to remove the SALT exemption except to punish blue states. The party of states rights just removed the ability for individual states to try and innovate on budgetary matters and optimize spending into certain sectors of their economy they find particularly relevant - repealing this is a federalist policy which doesn't really meld with their messaging.

AFNobody 9y ago

> Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes. This assertion isn't true. Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart. https://taxfoundation.org/federal-taxes-paid-vs-federal-spending-received-state-1981-2005/ https://taxfoundation.org/federal-taxes-paid-vs-federal-spen... 5 of 24 years (1981-2005) CA has received less. And if you look up the scattering (but less concentrated) stats from 2005-2017, CA has been getting less than 80% of its money back from the Federal government. So its really 31 of the past 36 years that CA has been drained to help red states. https://taxfoundation.org/states-rely-most-federal-aid/ https://taxfoundation.org/states-rely-most-federal-aid/ > If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions. That is a strawman. Progressive taxation has nothing to do with aggregate wealth and everything to do with individual wealth.

creaghpatr 9y ago
>Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart. Much of that funding goes to subsidies (farming, energy, etc) for which the whole country enjoys the benefits, if not proportionally. A state like SC that has a disproportionate amount of military bases is going to receive far more per capita government funds, though the local SC taxpayers only get marginally more benefit than the rest of the country. That's not to say you are wrong that rural states get better de facto tax treatment than urban-focused states but it's a bit more intertwined than it sounds.
- AFNobody 9y ago
  > local SC taxpayers only get marginally more benefit than the rest of the country. I wouldn't agree its marginally more benefit. Those bases being shut down would crush SC's economy within 50 miles of every base. Economically, they enjoy 100% of the benefit and pay less than 5% of the costs. The US is not, in any real sense, threatened militarily that I benefit from a large defense budget. Similar is true of food and energy subsidies. They have strategic value but they don't benefit me economically. There is a reason food and energy imports are still competitive despite the subsidies. The benefits of what you mention is it helps broaden the US's foreign policy options, not actual economic value to the average American.

shagmin 9y ago

I like the other replies, but I'd like to add something that I haven't seen discussed much. The median income in New York and California is probably much higher compared to any random flyover red state. Your average household in NY and CA is going to be at a higher marginal tax rate than say Nebraska. I haven't done the math, but I'd suspect the deduction flattens this difference to some extent.

dragonwriter 9y ago

> I don't see why state taxes should be federally deductible to begin with. The same reason legitimate business expenses (including, of course, state and local taxes paid by businesses, which are not affected by this reform) should be and are, and the same reason lots of personal expenses (some of which are, some of which are not currently) should be: expenses which are essential prerequisites to or consequence of earning income should be netted against income before taxing it. My state and local income, property, and sales tax are the support payments for the physical and social infrastructure that allows me to earn the income I do. With the federal deduction (and assuming state taxes with a marginal rate below unity), it's in my interest to engage politically to optimize for my net return before federal taxes; without the federal deduction, it becomes worthwhile to sacrifice income (before and after) state taxes for lower state taxes, so long as the reduced federal tax cost of the lower pre-state-tax income is enough to offset the reduced net-of-state-tax-but-before-federal-tax income. This encourages producing less market value when the net after state taxes is equal, encouraging economic contraction. For illustration, suppose, for simplicity, a federal flat marginal tax rate of 30% percent, and the ability to make $100K with a state tax rate of 10% or $94K with a state tax rate of 5%, and no other deductions. Ignoring federal tax, the optimum choice is to choose the $100K income with the 10% tax: it provides an $90K net (of state taxes) income, compared to $89.3K in the lower-base-pay regime. If you deduct state taxes from federal taxes, the incentives are unchanged, the net becomes $63K vs. $62.51 with the high-income, high-tax choice providing the higher net income. But if you don't deduct the state taxes, the incentives are flipped: producing less market value even after the cost of local infrastructure becomes preferable, with the net being $60K vs. $61.10K. Supporters of this proposal say it punishes people in high-tax states for bad political decisions; but the math is that it punishes them for good political decisions—for choosing increased taxes when the increase in market value produced that those taxes enable is greater than the value of the taxes.

ctdonath 9y ago

I don't see why state taxes wouldn't be federally deductible. Roughly: if I work 6 hours, I have to work an additional hour a day just to earn money to give to the state; you're suggesting I should work an additional 15 minutes to earn money to give to the feds just because I earned the money to give to the state. Absolutely I shouldn't be paying taxes on money earned just to pay taxes. It's not like I'm "shielding my earnings", because those earnings are earned specifically to get confiscated - you want me to earn more just because someone else took my money.

smsm42 9y ago
With the same logic, every expense should be deducted. If I work additional hour to give money to the landlord/clothes store/pub owner, why should I work additional 15 minutes to give money to the feds just because I earned money to give to the landlord/clothes store/pub owner? Because tax is charged on the income, not on money left in your pocket after paying everybody else. That's why it is income tax, not wealth tax or savings tax or any other tax.
- ctdonath 9y ago
  Taxes are fundamentally different from other expenses. I'm not opting to purchase a service (or not, just saving the money) when paying taxes, I'm facing the implication of a gun to my head (the ultimate enforcement of government power). No other expense comes directly from simply how much I earn, and is not compulsory based thereon. If there's going to be deductions at all, the first should be taxes paid to other levels of gov't.
  - smsm42 9y ago
    I do not see how compulsory nature of the expense matters in this particular case. You need to eat to live - should food expenses be deducted? What if you're sick and need to pay for medicine - should that be deducted? You need to be clothed to go on the street - should clothing expenses be deducted? You can find argument for many of those, but ultimately the decision is arbitrary based on preferred policy by state. If the state police would favor improving the clothing situation of the population - you may very well get clothes deduction. Depending on what the government wants to promote or suppress, you may get various policy deductions.