9 ms·

Can't you deduce state tax from federal income? It's really weird seeing the US get scared of a 8% tax. Those taxes are services after all.

Spooky23 8y ago
The recent tax changes cap that at $10k, which is a problem for high-income people in blue states.
beamatronic 8y ago
It’s now capped at $10k with last years tax law change
mrguyorama 8y ago
Not (as much, see below) anymore. That was specifically removed by the recent tax overhaul The more cynical view is that this was done on purpose to harm blue states that tend to have higher state income taxes
- leetcrew 8y ago
  > The more cynical view is that this was done on purpose to harm blue states that tend to have higher state income taxes this could very well be true, but it does seem unfair in the first place to be able to deduct state income tax. it's great that some states have decided to increase their income taxes to offer more services to their citizens, but why should tax payers in other states have to subsidize them without receiving any benefit?
  - dahdum 8y ago
    While I benefited from that deduction, it never seemed fair that that the rest of the country had to kick in a tiny bit extra to give upper middle and above taxpayers a break.
  - Redoubts 8y ago
    Generally those states pay more than they receive in federal funds.
    - leetcrew 8y ago
      not exactly, only about 15 states pay more federal tax than they receive back, and they're not all the ones you would expect. [0] still, this is a valid point. the net flow of cash is certainly an important thing to consider, but i do think it is worth making the distinction between federal and state taxes. i happen to live in a (very blue) state that receives more federal dollars than we pay in taxes. if i lived in a creditor state, i would certainly not be thrilled with the situation, but i would accept that the tax is raised (at least ostensibly) for the national interest and may not be spent evenly among the states. state taxes, on the other hand, are raised exclusively for the benefit of that state. we can argue about how to allocate federal dollars most fairly, but i really feel that state taxes should not be directly subsidized by citizens of other states. [0] 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...
      - deleted 8y ago
        [deleted]
  - mrguyorama 8y ago
    Nobody subsidizes many blue states, which in fact subsidize many poorer states (as Texas does as well). I'm not sure how I feel about the concept, but one rationalization is that if a basic need, like road funding, is suitably taken care of at the state level by high state income taxes, then the state needs less federal funding. It's sort of a usage qualifier I guess.
  - pwthornton 8y ago
    In general, wealthy higher-tax states subsidize the poorer, lower-tax states. The argument for the deduction, which has always existed, is to prevent people from being double taxed. A higher-tax state may tax its citizens to pay for infrastructure or services, whereas a low-tax state relies on the federal government to pay for the same stuff. There are tons of people in poverty in a lot of southern lower-tax states. Who do you think pays for all of the government services these people need? The tax plan was specifically designed to harm blue states and to make residents of blue states pay and even higher, even less balanced share of tax receipts in the country.
    - perl4ever 8y ago
      I would say this is triple taxation. Looking at how "double taxation" is used to refer to taxing at both corporate and individual level of public company profits, this is an additional burden on top of a two level system. Imagine getting taxed on the amount of taxes paid by a company you own shares of. State and federal levels are "double" in the first place. Triple is a little hyperbolic, as you could probably best describe it with a number between 2 and 3 depending on the tax rate.
  - InitialLastName 8y ago
    The cynic would argue that those same states also tend to pay into the federal government disproportionately. "Why should we be subsidising states like Alabama (who can't even be bothered to educate their populations) without receiving any benefit?"
    - deleted 8y ago
      [deleted]
  - elihu 8y ago
    One practical concern is that it's a lot easier for a state to implement something like single-payer health care if they can pay for it through state taxes that are exempt from federal taxes. Otherwise, they're competing with employer-provided health insurance, which is already tax-exempt. That gives employer-provided insurance a huge artificial advantage and makes single-payer a lot more expensive in comparison.
  - perl4ever 8y ago
    Why should you pay federal taxes on state taxes? Consider that it's long been a complaint that it's "double taxation" to pay individual taxes on dividends which already got taxed at the corporate level. Imagine if, on top of that, you got taxed on the quantity that was paid in corporate taxes, that you didn't even receive. I imagine quite a lot of outrage if liberals proposed that, because it goes even beyond what is already an intuitively unfair situation to a lot of people.
dpark 8y ago
You can deduct it but that doesn’t reduce federal taxes by that amount. If you’re in the 25% federal tax bracket, being able to deduct that 8% state tax effectively turns it into 6% additional tax which is still a lot if you weren’t paying it before. Edit: others pointed out that this deduction is now capped, which I didn’t realize.
russell_h 8y ago
Under the new federal tax law there is a $10k limit on how much state tax may be deducted from your income for the purpose of calculating federal taxes, and by opting in to this deduction you opt out of your "standard" deduction which is $12k for an individual or $24k for a married couple. Under some circumstances it may still make sense to take the up-to-$10k deduction, because it may be combined with other deductions which will add up to more than the standard deduction, but for someone paying much less than $10k in state taxes it is probably more advantageous to simply take the standard deduction, and for someone paying much more than $10k the deduction may only represent a small portion of their state taxes.
s73v3r_ 8y ago
With the new tax bill, there's a cap at $10k that you can deduct.
JumpCrisscross 8y ago
> It's really weird seeing the US get scared of a 8% tax. Those taxes are services after all. Not necessarily. Illinois spends roughly half its budget on pensions. In New York, where I don't need a car and can offload much of what I'd hire a lawyer for onto regulators, I get a decent bang for my buck. (Though we still have horrendous waste.)

Spooky23 8y ago

The recent tax changes cap that at $10k, which is a problem for high-income people in blue states.

beamatronic 8y ago

It’s now capped at $10k with last years tax law change

mrguyorama 8y ago

Not (as much, see below) anymore. That was specifically removed by the recent tax overhaul The more cynical view is that this was done on purpose to harm blue states that tend to have higher state income taxes

leetcrew 8y ago
> The more cynical view is that this was done on purpose to harm blue states that tend to have higher state income taxes this could very well be true, but it does seem unfair in the first place to be able to deduct state income tax. it's great that some states have decided to increase their income taxes to offer more services to their citizens, but why should tax payers in other states have to subsidize them without receiving any benefit?
- dahdum 8y ago
  While I benefited from that deduction, it never seemed fair that that the rest of the country had to kick in a tiny bit extra to give upper middle and above taxpayers a break.
- Redoubts 8y ago
  Generally those states pay more than they receive in federal funds.
  - leetcrew 8y ago
    not exactly, only about 15 states pay more federal tax than they receive back, and they're not all the ones you would expect. [0] still, this is a valid point. the net flow of cash is certainly an important thing to consider, but i do think it is worth making the distinction between federal and state taxes. i happen to live in a (very blue) state that receives more federal dollars than we pay in taxes. if i lived in a creditor state, i would certainly not be thrilled with the situation, but i would accept that the tax is raised (at least ostensibly) for the national interest and may not be spent evenly among the states. state taxes, on the other hand, are raised exclusively for the benefit of that state. we can argue about how to allocate federal dollars most fairly, but i really feel that state taxes should not be directly subsidized by citizens of other states. [0] 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...
    - deleted 8y ago
      [deleted]
- mrguyorama 8y ago
  Nobody subsidizes many blue states, which in fact subsidize many poorer states (as Texas does as well). I'm not sure how I feel about the concept, but one rationalization is that if a basic need, like road funding, is suitably taken care of at the state level by high state income taxes, then the state needs less federal funding. It's sort of a usage qualifier I guess.
- pwthornton 8y ago
  In general, wealthy higher-tax states subsidize the poorer, lower-tax states. The argument for the deduction, which has always existed, is to prevent people from being double taxed. A higher-tax state may tax its citizens to pay for infrastructure or services, whereas a low-tax state relies on the federal government to pay for the same stuff. There are tons of people in poverty in a lot of southern lower-tax states. Who do you think pays for all of the government services these people need? The tax plan was specifically designed to harm blue states and to make residents of blue states pay and even higher, even less balanced share of tax receipts in the country.
  - perl4ever 8y ago
    I would say this is triple taxation. Looking at how "double taxation" is used to refer to taxing at both corporate and individual level of public company profits, this is an additional burden on top of a two level system. Imagine getting taxed on the amount of taxes paid by a company you own shares of. State and federal levels are "double" in the first place. Triple is a little hyperbolic, as you could probably best describe it with a number between 2 and 3 depending on the tax rate.
- InitialLastName 8y ago
  The cynic would argue that those same states also tend to pay into the federal government disproportionately. "Why should we be subsidising states like Alabama (who can't even be bothered to educate their populations) without receiving any benefit?"
  - deleted 8y ago
    [deleted]
- elihu 8y ago
  One practical concern is that it's a lot easier for a state to implement something like single-payer health care if they can pay for it through state taxes that are exempt from federal taxes. Otherwise, they're competing with employer-provided health insurance, which is already tax-exempt. That gives employer-provided insurance a huge artificial advantage and makes single-payer a lot more expensive in comparison.
- perl4ever 8y ago
  Why should you pay federal taxes on state taxes? Consider that it's long been a complaint that it's "double taxation" to pay individual taxes on dividends which already got taxed at the corporate level. Imagine if, on top of that, you got taxed on the quantity that was paid in corporate taxes, that you didn't even receive. I imagine quite a lot of outrage if liberals proposed that, because it goes even beyond what is already an intuitively unfair situation to a lot of people.

dpark 8y ago

You can deduct it but that doesn’t reduce federal taxes by that amount. If you’re in the 25% federal tax bracket, being able to deduct that 8% state tax effectively turns it into 6% additional tax which is still a lot if you weren’t paying it before. Edit: others pointed out that this deduction is now capped, which I didn’t realize.

russell_h 8y ago

Under the new federal tax law there is a $10k limit on how much state tax may be deducted from your income for the purpose of calculating federal taxes, and by opting in to this deduction you opt out of your "standard" deduction which is $12k for an individual or $24k for a married couple. Under some circumstances it may still make sense to take the up-to-$10k deduction, because it may be combined with other deductions which will add up to more than the standard deduction, but for someone paying much less than $10k in state taxes it is probably more advantageous to simply take the standard deduction, and for someone paying much more than $10k the deduction may only represent a small portion of their state taxes.

s73v3r_ 8y ago

With the new tax bill, there's a cap at $10k that you can deduct.

JumpCrisscross 8y ago

> It's really weird seeing the US get scared of a 8% tax. Those taxes are services after all. Not necessarily. Illinois spends roughly half its budget on pensions. In New York, where I don't need a car and can offload much of what I'd hire a lawyer for onto regulators, I get a decent bang for my buck. (Though we still have horrendous waste.)