22 ms·

High-tax states like California and New York make it hard for rich to leave

107 points by mykowebhn 8y ago

erentz 8y ago
I’ve not understood this and am strangely on the side of removing all deductions. Why should anyone pay less federal tax than a person living across the border just because you pay tax to your state? If you don’t like it and think the other state is right not to collect income tax and that state is doing better for it, then surely it’s on you and everyone who agrees to set about voting to remove your own state tax. Not to expect the federal government to give you a special deduction that the other person doesn’t get.
- pwthornton 8y ago
  It's a double taxation thing. It's not like low-tax states don't have services. They simply rely on the federal government to provide them. States that have low state and local taxes do so because the federal government subsidizes their low taxness. States with higher local and state taxes are subsidizing the low-tax states. In addition, the higher-tax states are also more productive. If anything, the argument should be that the federal government should stop providing so much assistance to low-tax states. There are perverse incentives at work here, however. The Senate provides every state with the same amount of representation. So a state with a small population can choose not to tax itself much and simply rely on federal spending bills to cover a lot of its needs. The SALT deduction has existed from the very beginning of the federal income tax. Part of its purpose is to incentivize states so that they don't simply stop spending their own money and pushing everything off onto the federal government: "The Revenue Act of 1913, which introduced the federal income tax, states that 'all national, state, county, school, and municipal taxes paid within the year, not including those assessed against local benefits' can be deducted."
  - sorryforthethro 8y ago
    That is the hypothetical reason, but in practice, what are the services that low-tax states consume disproportionately? In WA state I can't think of any, other than federal programs that use the land (like nuclear containment)
    - pwthornton 8y ago
      The biggest ones off the top of my head are: 1) Transportation. Most spending in this area is by the federal government. But dense areas that rely on public transportation have to rely heavily on state and local taxes to support projects, whereas many roads, bridges, and even intersections are built in suburban and rural areas almost entirely with federal dollars. This is part of why our country has so little public transportation versus other countries. The federal government spends disproportionately on roads, which benefits certain areas and segments of the population a lot more than others. 2) Healthcare. Many states began expanding healthcare after the Affordable Care Act brought in Medicaid expansion. This is almost entirely paid for by the federal government. Higher-tax states already had higher levels of healthcare spending through programs to expand coverage. Some states like Massachusetts already had models like the ACA in place. Many higher-tax states have unionized state and local workers who are provided with high-quality healthcare and insurance. In other states where a lot of outsourced, it is a much different picture.
      - dantheman 8y ago
        MA was receiving large amounts of federal funding for its healthcare. e.g. 385 million per year for uninsured patients https://en.wikipedia.org/wiki/Massachusetts_health_care_reform https://en.wikipedia.org/wiki/Massachusetts_health_care_refo...
    - woolvalley 8y ago
      https://www.moneytips.com/is-your-state-a-net-payer-or-a-net-taker/356 https://www.moneytips.com/is-your-state-a-net-payer-or-a-net...
  - anemitz 8y ago
    States that have low state and local taxes do so because the federal government subsidizes their low taxness. Yes and no. Texas and Nevada are bottom 10 ranked on federal funding per capita. They also have no income tax. Alaska and Wyoming are top 10 ranked in federal funding per capita. So it's not as black and white as you're claiming. Revenue comes from many sources at the state level not just income: licenses, mineral rights, sales, property, etc..
    - pwthornton 8y ago
      You can't rely on income taxes a proxy for tax rates. Many states with low or no income taxes have monster property taxes. State, local, and property taxes are all one bucket. You have to make sure you are counting all of these together when you talk about taxes. I live in Maryland and my property tax is like 1/4th of my parents in Ohio, and there are a lot worse states for property tax than Ohio. Texas is an outlier, however, due to its history with oil and mineral rights. Alaska is another one. These states didn't earn the natural resources they are exploiting, but they have benefitted from them considerably, and this has allowed them to operate differently than most other low-tax states.
      - Nrsolis 8y ago
        Earn? Did NYC "earn" it's first-mover advantage, natural harbor, and particular terrestrial makeup that supports high-rise buildings on the solid granite beneath the feet of every NYC resident? Did CA "earn" it's fertile central valley, diverse climates great for agriculture and recreation, and miles of gorgeous coastline? Each wave of residents exploits the resources available to them. No more. No less. Let's not pretend otherwise. Economics is not a morality tale.
        saalweachter 8y ago
        While I'm not going to dispute your larger point, I do want to point out that New York was not originally the shipping capital of the colonies; Philadelphia was. New York City only became the center of trade that it was for so many years after constructing the Erie Canal, allowing trade to easily reach into the Great Lakes and the center of the continent. Many of New York's subsequent advantages (such as the dominance of the NYSE as the various exchanges consolidated) stem from this. Likewise, California has a great climate for many types of agriculture precisely because it gets so little rain in the Central Valley; farmers can irrigate their crops to the ideal amount water at each point in their lifespan, while farmers elsewhere in the country are subject to the whims of nature. Integral to California's success in agriculture, then, is their investment in irrigation. Again, I don't mean to dispute your core points, but while it's good to be lucky, investments also compound. California and New York have both historically invested in their economies through massive public works.
  - erentz 8y ago
    That’s not double taxation. The federal government takes X% of the total. The state government takes Y% of the total. They’re aware of each other. They can coordinate accordingly. Avoidance of double taxation is not accomplished with a deduction it is done with a tax credit. That is when I pay A% of tax first to the country of primary residence, and then work out I need to pay B% to a country that has secondary claim on it, I can deduct the whole amount of A tax from B tax. I understand the inequitable spending. Yes richer states subsidize poorer states. But is the right solution to that a complication of the tax system? I don’t think so. I think that’s a spending problem that should be addressed for what it is. And it will never be possible to have equitable spending. There will always be poorer and richer parts of the country. We can’t make the poorer parts richer by giving them less money. Within a state like CA or NY there are also richer and poorer parts that may not get equal spending from the state. People in CA and NY get a raw deal mostly because they wind up paying as much (if not often more) taxes as countries that offer universal healthcare, or better education, (and which can manage to build a friggen railway). But that again isn’t resolved by an extra federal deduction. It’s resolved by addressing the dysfunctions or poor spending priorities head on. To which the complaint is usually again that the fault lays with the poor “red states” who prevent that. To which I say, no stop scape goating. Nancy Pelosi is from CA and doesn’t support fixing any of those things. She’s a blue state representative at the highest level of the house. So no, CA and NY politicians are just as much a part of the problem. Stop blaming “red staters”.
    - daveFNbuck 8y ago
      > They’re aware of each other. They can coordinate accordingly. The thing you're arguing against is coordination.
    - jeffbax 8y ago
      Agreed. The total disregard for caring how effectively money is spent in high tax states is a huge problem that does a disservice to the goals of the voters. The pension bomb is going to be a reckoning.
  - ataturk 8y ago
    I don't know what all these 'services' are and I don't want them. All I want is my own money that I earned and to hell with this bloated mess that is making me into a serf. Fuck the Federal Government, fuck it hard. Just a bunch of drunk, money-wasting slobs who are abrogating my rights.
  - tracker1 8y ago
    I pay taxes on my income, then still have taxes on sales, property, and every single utility bolted on. It's not like it isn't already there. It just puts a cap on what you can deduct from federal. Personally, I think most taxes should be abolished and a return to taxes on sale/trade would be preferred. Then again, I'd also like a bit more sanity in IP as well.
  - ensignavenger 8y ago
    I don't think this is true across the board- do you have a source? Looking at https://www.frbsf.org/economic-research/publications/economic-letter/2013/december/taxes-transfers-redistribution-us-federal-government-states/ https://www.frbsf.org/economic-research/publications/economi..., I see a lot of relatively low tax states that have a positive net transfer to the federal government.
- mikekij 8y ago
  It feels unfair to be forced to pay the federal government taxes on money you’ve never seen. If the state takes $10k away from your paycheck before you ever see it, should this really be treated as income for federal taxation purposes?
  - yostrovs 8y ago
    By that reasoning one should be able to write off federal taxes off of their federal taxes.
    - woolvalley 8y ago
      Maybe off of your state taxes I think makes more sense.
      - yostrovs 8y ago
        In some places, such as New York city, there's also a city income tax. Do the states with such cities allow the writing off of the local tax off of the state tax?
        greenyoda 8y ago
        You can not deduct NYC income tax on your NY State income tax return. (I know this because I'm a NYC resident.)
  - anemitz 8y ago
    When you purchase something at a store in California is the city sales tax calculated on the pretax price of the item or post state and county tax? If you look at other forms of compound tax rates you'll see the same pattern AFAIK.
  - kolbe 8y ago
    'It feels unfair' can describe myriad aspects of our tax system.
  - 8y ago
- dragonwriter 8y ago
  > Why should anyone pay less federal tax than a person living across the border just because you pay tax to your state? Because state taxing and spending decisions are part of what creates the opportunity to earn income, and if state taxes aren't deductible than federal taxes distort those decisions and artificially promotes lower tax policy even when the higher tax policy expands the production possibilities curve and yield more income. The federal thumb should be off that scale and the only way to do that is full deductibility of state and local taxes. It's a lot like why business expenses are deductible, why you are only taxed on the net proceeds of capital (whether it is used as regular income or long-term gains), or why even hobby expenses are offset against hobby income.
- compiler-guy 8y ago
  If the feds charge X% and the state charges Y%, then it is entirely possible that x + Y > 100%. When SALT is deductible, it prevents that scenario. That isn't the case today, but it is well within the realm of possibility if, say, one the Democrats' maximum-tax-rate proposals are enacted (which I broadly support). The states and the feds historically don't coordinate taxes well, but the SALT deduction was one way of coordinating. It hasn't been replaced by anything, and it needs to be.
  - moate 8y ago
    It will likely be replaced by greater demand from those states for Federal Funding if they're forced to lower their state taxes in order to offset constituent fears.
- throwaway34241 8y ago
  There are two separate arguments I can think of for deducting state taxes. First, the federal tax rates are heavily graduated on the grounds that it's less burdensome to tax people that make more money. But in states with high (also graduated) income taxes, high taxpayers aren't personally making that money (in any meaningful way), nor are they generally getting it back from a proportionally higher amount of government services. States are essentially redistributing income from high-income taxpayers to beneficiaries of social insurance programs and state residents overall. From that perspective, it might make more sense to tax the increased level of state services as income to those who receive it. With a flat federal tax it would make no difference in total collections, but with the graduated federal income tax this would be a much lower on average tax rate. Second is much simpler: most of the state government spending is on education, social services etc... things that are in line with tax-deductible charities. So it's not inconsistent to have state taxes be deductible too (of course getting rid of both deductions is also an option).
- jliptzin 8y ago
  States should pay federal taxes out of their own budgets. How the individual states decide to collect that revenue from their residents is up to them. There should not be individual taxes paid to the federal government and to state governments which now results in some degree of double taxation due to the elimination of SALT deductions. After all, the people do not choose the President, the states do. Each state has a certain number of electors in the electoral college and they can allocate those electors to the candidates as they see fit. In most states that happens to coincide with state's election in which the popular vote of the state determines all the electors (some states split electoral votes) but it doesn't have to be that way (see National Popular Vote Interstate Compact). Additionally, the Senate does not represent the people, it represents the states. That's why there's huge power imbalances among people in the Senate living in California vs. Wyoming, for example. The supreme court is chosen by the President and confirmed by the Senate. The only branch of federal government chosen by and representing the people is the House. So if the people are not even directly choosing the major branches of the federal government, they should not be directly paying taxes to it.
  - jrs235 8y ago
    >Additionally, the Senate does not represent the people, it represents the states. While that is how is was originally designed, the 17th Amendment kinda of took that away. Originally the state legislatures elected their state's representatives (Senators) in the federal government. With the passing of the 17th Amendment, the direct election of Senators has contributed to the ridiculousness of our federal government. I would bet few state elected Senators (who actually represent their state governments) would ever pass federal laws/mandates that would punish a state and withhold funds if they didn't comply with the federal governments demands such as the National Minimum Drinking Age Act of 1984.
NotAnEconomist 8y ago
We should remove the California and New York subsidy: We subsidize their social services at the expense of the nation by allowing them to deduct local taxes from national taxes -- lowering their effective national tax rate as a reward for giving their residents back tax money via services. I'm for tax equity: stop subsidizing the wealthy states for hoarding their money.
- mc32 8y ago
  California usually complains its taxed pop sends more money in than it receives in federal largesse. That we are subsidizing “red states”. Not sure who’s right since both make these claims against each other.
  - scarmig 8y ago
    Both. California and NY both are productive enough that they send far more money to the federal government than they get back. The state and local tax deduction makes up for this a little, but on net they still give far more than red states.
    - deleted 8y ago
      [deleted]
  - NotAnEconomist 8y ago
    > California usually complains its taxed pop sends more money in than it receives in federal largesse. This isn't incompatible with what I said. California pays more than it receives, but less than it should given the benefits that it receives (and the agreed upon national tax rate). It's good that SALT has been limited, and the investment that the US has made in certain urban environments (eg, founding Silicon Valley) will be properly distributed across the country instead of hoarded by the states where those investments were made.
    - 0xffff2 8y ago
      >California pays more than it receives, but less than it should given the benefits that it receives How are you measuring benefits received if not by dollars received?
lsiebert 8y ago
I believe studies have shown that wealthy people aren't dramatically affected by tax rates in terms of where they live. So this seems to be more about where people say they live. Per this, 98% of millionares don't move based on income tax: https://www.citylab.com/equity/2016/06/do-taxes-really-cause-the-rich-to-move/487835/ https://www.citylab.com/equity/2016/06/do-taxes-really-cause...
myrandomcomment 8y ago
As a personal point, my taxes went up $18K because of this change. It is my personal belief that the change in the tax code here was specifically targeted blue states for political reasons by the republicans. My wife and I are thinking about leaving after the kid finishes school. The interesting thing is the long term consequences might be that enough people leave NY and CA and move to traditional red states to change them to blue. To be clear we were already thinking about moving before this change. This just add one more reason.
- jayess 8y ago
  So you're upset that you have to actually pay the high taxes you voted for, and because of that, you want to move to a low-tax state to vote for the same policies, because you're bitter about having to pay the taxes you voted for? F that. Stay in your high-tax state and deal with the consequences of your own decisions.
  - myrandomcomment 8y ago
    I have paid millions in taxes over the years and I have no issue doing so. What I take issue is that this change in the tax code was only done as a punishment by those in power against those with a different set of political belief. That is the fundamental issue here. We are bring our country down with this system of politics that has become so toxic that you do not see the person you disagree with politicly as anything more than someone to be crushed. (The venom of your comment is an example). The founding fathers (one of which I am a direct descendant of) very much believed in civil discourse and using the right people for the right job. Washington appointed people he very much disliked because they were the expert the job needed, outside of his personal or political views. Up until the time of Newt Gingrich who is somewhat responsible for this current environment, our representatives in general understood the art of the compromise. Personally I tend to be a libertarian and want the government out of most things. However I do except that fact that some form of taxes are a necessary thing in for any country to exist. I would like to see them line up in a more fair way, flat taxes on all income over a given amount, VAT for non-food, non-essential items, etc. Most of the way we tax is broken. A prime example in CA is property taxes. When my family and I moved last, our search for a home was limited to 5 parts of the Bay Area because of schools. If you want your kid to go to a great school, buy in a rich area as the schools are funded by property taxes. Seems to me it would be better to share that money equally across the state. It would help uplift everyone. Edit: spelling
rconti 8y ago
Headline should be "High-tax states like California and New York do not like it when you pretend to live elsewhere in order to avoid taxes." Every example seemed to be about people who were trying to dodge taxes while still actually having the "high tax" state as a de-facto primary residence.
- compiler-guy 8y ago
  Where "every example" is better phrased as, "There are a wide variety of living situations that involve two states; and some look more like domociling oneself in one, rather than the other." Yes, some of these examples were pretty likely fraud, but some also seem like real moves that the tax auditors weren't happy about.
- adrianmonk 8y ago
  Yeah, I expected this article to be about leaving. Instead it's about pretending to leave.
- exegete 8y ago
  At least in the case of New York they still tax non-residents on income earned from New York. (I realize it may be less for non-residents than residents). It seems strange that I am legally obligated to pay taxes to a State but have no vote in the choosing representatives who levy those taxes.
  - kgwgk 8y ago
    Non-residents pay city/state sales taxes as well, and that doesn’t give voting rights either.
  - rconti 8y ago
    That's a good point. That's a thing in California too. There's a 540NR for reporting non-resident income earned in California. I guess it never seemed 'unfair' to me because when I was a non-resident I was a student who spent most of my time in CA, and that's where I worked, so it seemed logical. In some more complicated situations where you technically earn money in the state even though you don't have a home there, I could see how it would feel unfair. (I can't think of such a situation off the top of my head, but I'm sure they exist.. actually the athlete example might be a good one).
ThomPete 8y ago
Ive said it before. The rich dont pay income tax because they dont have an income, they use long term capital gains and carried interest. Not sure why I am getting downvoted. Did I say anything factually wrong?
- almost_usual 8y ago
  They do pay property tax..
  - cptskippy 8y ago
    Only if they can't avoid it.
  - ThomPete 8y ago
    Property tax is nothing compared to the income tax you can end up paying. And again carried interest.
  - ceejayoz 8y ago
    They try not to. Our local billionaire refused to pay his property taxes for a while because geese pooped on his lakefront lawn. https://www.democratandchronicle.com/story/news/2017/10/23/tom-golisano-billionaire-witholds-taxes-canandaigua-lake-geese-paychex/790888001/ https://www.democratandchronicle.com/story/news/2017/10/23/t...
- dahdum 8y ago
  The underlying theory is that the corporation generating those gains or dividends was already taxed on that income before distribution. Most economists love the idea of a 0% corporate income tax, which would likely be paired with LTCG going to the earned income rate. Unfortunately it sounds too much like a "handout" to be politically viable.
  - conanbatt 8y ago
    Ding ding. Corporate taxes as a policy is one of the incredibles where economics and politics clash complete.y
itchyjunk 8y ago
So the states are not making it hard to leave but making it hard to pretend to leave?
deleted 8y ago
[deleted]
tracker1 8y ago
I thought everyone wanted the rich to pay their fair share? This change mostly affects the rich, it's even in the title of TFA. It's where the richest in the country live that is most affected. Personally, I'd like to see income taxes removed entirely in favor of sales/import/export taxes.
- conanbatt 8y ago
  I never went deep into this idea: why would sales/import export taxes be any better? Sales are regressive taxes, and import/export are distortive af.
  - tracker1 8y ago
    Mainly that it is a simpler system that is easier to control with less bureaucracy. Today it would probably also hold to money transfers out of the country. I'm mostly a proponent of a minimalist government, pragmatically speaking. I'm a proponent of laws and systems that increase personal liberty and minimize bureaucracy. I accept that there may be some distortion and it isn't exactly fair. But the deductions in the current system aren't exactly fair either.
    - conanbatt 8y ago
      Land taxes are the best for that. They are impossible to avoid, very easy and predictable to levvy, and are way more representational, fair and non-distortive taxes.
      - tracker1 8y ago
        I'm also not a fan of property taxes for individuals... It may be impractical, but if someone is able to live on their own, purchased land with no interaction with the outside world, they shouldn't be at risk of losing property for simply continuing to live.
        conanbatt 8y ago
jayess 8y ago
So people in high tax states vote for higher taxes, then complain when they have to actually pay those taxes?
- moate 8y ago
  Nobody votes for "higher taxes" they vote for "better services". Also, it's a pretty bold assumption that NY and CA voters were in favor of the party that changed federal policy affecting their taxes. This is a confederalism vs federalism issue. If you believe in a strong Federal government, support the lowering of the SALT. If you believe that states are best at determining how to support their residents, oppose it.
- jandrese 8y ago
  New York and California went for Hillary, so they didn't vote for these increases.
  - niij 8y ago
    GP was referring to higher state taxes. I believe. People in those states voted for higher state taxes and got it, but now that they can't deduct them from federal income tax, it's starting to sting.
    - moate 8y ago
      But the two are tied. The assumption was that the local tax increases wouldn't be as burdensome on the tax payer in those states because it would be offset by the SALT deduction at the federal level. The whole picture can be considered. Someone living in NJ could easily be offered a tax increase from a state lawmaker, feel that there is a benefit to them in the service that tax will pay for, do the math and realize that with the SALT deduction, they wouldn't be paying any extra money in taxes for their services. Changing the SALT deduction is what changes the math here. They weren't voting for "higher taxes" they were voting for "more services".
      - niij 8y ago
asabjorn 8y ago
It is worthwhile looking at the mechanics of the individual and collective US perspective. Individual in high-tax-state: From an individual perspective living in a high tax state like California, not being able to deduct state taxes in excess of $10000 from federal taxes is effectively a tax increase. For federal US as a collective: For the US as a federal whole deducting an increased state tax from federal taxes is effectively a reduction of the federal tax percentage, especially when states vote for increasing taxes to fund projects that are not delegated from democratic consensus at the federal level. Capping the deduction at $10k per individual makes it equal for all citizens regardless of which state they live in. This is therefore in some ways a fight between competing visions of what the US should be.
Causality1 8y ago
Headline is misleading. Should be "High tax states like California and New York make it hard for the rich to fake leaving".
luxuryballs 8y ago
for anyone else who couldn’t view due to ad-block: http://archive.is/awD3C http://archive.is/awD3C
Tsubasachan 8y ago
Rich people don't leave because of taxes, they have money after all. They can pay. California and New York are places were the rich and famous WANT to be. Its also coincedentally the places were they make their fortunes. Alabama could abolish taxes and the 5% aren't moving there.
hopler 8y ago
Headline doesn't match article. the article explains how it's easy to fake residency for tax purposes, buy putting a few cheap props I the low tax state. Judges don't understand that things that are precious to low wealth individuals are easy for wealthy individuals to buy, cheap relative to the tax bills. The first example was the $400K tax cancelled because the guy hired a dogsitter in Texas.
doggydogs94 8y ago
Totally eliminating the SALT deduction would end this discussion.
ykevinator 8y ago
I don't mind taxes, I hate waste. New York has the best schools libraries and sidewalks. I wish we didn't blow billions on stupid stuff.
mac01021 8y ago
Pretty bad title. tldr: if you don't actually cut all ties (property holdings and business dealings) with your state of origin, they my try to tax you as though you reside there still.

107 points by mykowebhn 8y ago

I’ve not understood this and am strangely on the side of removing all deductions. Why should anyone pay less federal tax than a person living across the border just because you pay tax to your state? If you don’t like it and think the other state is right not to collect income tax and that state is doing better for it, then surely it’s on you and everyone who agrees to set about voting to remove your own state tax. Not to expect the federal government to give you a special deduction that the other person doesn’t get.

pwthornton 8y ago
It's a double taxation thing. It's not like low-tax states don't have services. They simply rely on the federal government to provide them. States that have low state and local taxes do so because the federal government subsidizes their low taxness. States with higher local and state taxes are subsidizing the low-tax states. In addition, the higher-tax states are also more productive. If anything, the argument should be that the federal government should stop providing so much assistance to low-tax states. There are perverse incentives at work here, however. The Senate provides every state with the same amount of representation. So a state with a small population can choose not to tax itself much and simply rely on federal spending bills to cover a lot of its needs. The SALT deduction has existed from the very beginning of the federal income tax. Part of its purpose is to incentivize states so that they don't simply stop spending their own money and pushing everything off onto the federal government: "The Revenue Act of 1913, which introduced the federal income tax, states that 'all national, state, county, school, and municipal taxes paid within the year, not including those assessed against local benefits' can be deducted."
- sorryforthethro 8y ago
  That is the hypothetical reason, but in practice, what are the services that low-tax states consume disproportionately? In WA state I can't think of any, other than federal programs that use the land (like nuclear containment)
  - pwthornton 8y ago
    The biggest ones off the top of my head are: 1) Transportation. Most spending in this area is by the federal government. But dense areas that rely on public transportation have to rely heavily on state and local taxes to support projects, whereas many roads, bridges, and even intersections are built in suburban and rural areas almost entirely with federal dollars. This is part of why our country has so little public transportation versus other countries. The federal government spends disproportionately on roads, which benefits certain areas and segments of the population a lot more than others. 2) Healthcare. Many states began expanding healthcare after the Affordable Care Act brought in Medicaid expansion. This is almost entirely paid for by the federal government. Higher-tax states already had higher levels of healthcare spending through programs to expand coverage. Some states like Massachusetts already had models like the ACA in place. Many higher-tax states have unionized state and local workers who are provided with high-quality healthcare and insurance. In other states where a lot of outsourced, it is a much different picture.
    - dantheman 8y ago
      MA was receiving large amounts of federal funding for its healthcare. e.g. 385 million per year for uninsured patients https://en.wikipedia.org/wiki/Massachusetts_health_care_reform https://en.wikipedia.org/wiki/Massachusetts_health_care_refo...
  - woolvalley 8y ago
    https://www.moneytips.com/is-your-state-a-net-payer-or-a-net-taker/356 https://www.moneytips.com/is-your-state-a-net-payer-or-a-net...
- anemitz 8y ago
  States that have low state and local taxes do so because the federal government subsidizes their low taxness. Yes and no. Texas and Nevada are bottom 10 ranked on federal funding per capita. They also have no income tax. Alaska and Wyoming are top 10 ranked in federal funding per capita. So it's not as black and white as you're claiming. Revenue comes from many sources at the state level not just income: licenses, mineral rights, sales, property, etc..
  - pwthornton 8y ago
    You can't rely on income taxes a proxy for tax rates. Many states with low or no income taxes have monster property taxes. State, local, and property taxes are all one bucket. You have to make sure you are counting all of these together when you talk about taxes. I live in Maryland and my property tax is like 1/4th of my parents in Ohio, and there are a lot worse states for property tax than Ohio. Texas is an outlier, however, due to its history with oil and mineral rights. Alaska is another one. These states didn't earn the natural resources they are exploiting, but they have benefitted from them considerably, and this has allowed them to operate differently than most other low-tax states.
    - Nrsolis 8y ago
      Earn? Did NYC "earn" it's first-mover advantage, natural harbor, and particular terrestrial makeup that supports high-rise buildings on the solid granite beneath the feet of every NYC resident? Did CA "earn" it's fertile central valley, diverse climates great for agriculture and recreation, and miles of gorgeous coastline? Each wave of residents exploits the resources available to them. No more. No less. Let's not pretend otherwise. Economics is not a morality tale.
      - saalweachter 8y ago
        While I'm not going to dispute your larger point, I do want to point out that New York was not originally the shipping capital of the colonies; Philadelphia was. New York City only became the center of trade that it was for so many years after constructing the Erie Canal, allowing trade to easily reach into the Great Lakes and the center of the continent. Many of New York's subsequent advantages (such as the dominance of the NYSE as the various exchanges consolidated) stem from this. Likewise, California has a great climate for many types of agriculture precisely because it gets so little rain in the Central Valley; farmers can irrigate their crops to the ideal amount water at each point in their lifespan, while farmers elsewhere in the country are subject to the whims of nature. Integral to California's success in agriculture, then, is their investment in irrigation. Again, I don't mean to dispute your core points, but while it's good to be lucky, investments also compound. California and New York have both historically invested in their economies through massive public works.
- erentz 8y ago
  That’s not double taxation. The federal government takes X% of the total. The state government takes Y% of the total. They’re aware of each other. They can coordinate accordingly. Avoidance of double taxation is not accomplished with a deduction it is done with a tax credit. That is when I pay A% of tax first to the country of primary residence, and then work out I need to pay B% to a country that has secondary claim on it, I can deduct the whole amount of A tax from B tax. I understand the inequitable spending. Yes richer states subsidize poorer states. But is the right solution to that a complication of the tax system? I don’t think so. I think that’s a spending problem that should be addressed for what it is. And it will never be possible to have equitable spending. There will always be poorer and richer parts of the country. We can’t make the poorer parts richer by giving them less money. Within a state like CA or NY there are also richer and poorer parts that may not get equal spending from the state. People in CA and NY get a raw deal mostly because they wind up paying as much (if not often more) taxes as countries that offer universal healthcare, or better education, (and which can manage to build a friggen railway). But that again isn’t resolved by an extra federal deduction. It’s resolved by addressing the dysfunctions or poor spending priorities head on. To which the complaint is usually again that the fault lays with the poor “red states” who prevent that. To which I say, no stop scape goating. Nancy Pelosi is from CA and doesn’t support fixing any of those things. She’s a blue state representative at the highest level of the house. So no, CA and NY politicians are just as much a part of the problem. Stop blaming “red staters”.
  - daveFNbuck 8y ago
    > They’re aware of each other. They can coordinate accordingly. The thing you're arguing against is coordination.
  - jeffbax 8y ago
    Agreed. The total disregard for caring how effectively money is spent in high tax states is a huge problem that does a disservice to the goals of the voters. The pension bomb is going to be a reckoning.
- ataturk 8y ago
  I don't know what all these 'services' are and I don't want them. All I want is my own money that I earned and to hell with this bloated mess that is making me into a serf. Fuck the Federal Government, fuck it hard. Just a bunch of drunk, money-wasting slobs who are abrogating my rights.
- tracker1 8y ago
  I pay taxes on my income, then still have taxes on sales, property, and every single utility bolted on. It's not like it isn't already there. It just puts a cap on what you can deduct from federal. Personally, I think most taxes should be abolished and a return to taxes on sale/trade would be preferred. Then again, I'd also like a bit more sanity in IP as well.
- ensignavenger 8y ago
  I don't think this is true across the board- do you have a source? Looking at https://www.frbsf.org/economic-research/publications/economic-letter/2013/december/taxes-transfers-redistribution-us-federal-government-states/ https://www.frbsf.org/economic-research/publications/economi..., I see a lot of relatively low tax states that have a positive net transfer to the federal government.
mikekij 8y ago
It feels unfair to be forced to pay the federal government taxes on money you’ve never seen. If the state takes $10k away from your paycheck before you ever see it, should this really be treated as income for federal taxation purposes?
- yostrovs 8y ago
  By that reasoning one should be able to write off federal taxes off of their federal taxes.
  - woolvalley 8y ago
    Maybe off of your state taxes I think makes more sense.
    - yostrovs 8y ago
      In some places, such as New York city, there's also a city income tax. Do the states with such cities allow the writing off of the local tax off of the state tax?
      - greenyoda 8y ago
        You can not deduct NYC income tax on your NY State income tax return. (I know this because I'm a NYC resident.)
- anemitz 8y ago
  When you purchase something at a store in California is the city sales tax calculated on the pretax price of the item or post state and county tax? If you look at other forms of compound tax rates you'll see the same pattern AFAIK.
- kolbe 8y ago
  'It feels unfair' can describe myriad aspects of our tax system.
- 8y ago
dragonwriter 8y ago
> Why should anyone pay less federal tax than a person living across the border just because you pay tax to your state? Because state taxing and spending decisions are part of what creates the opportunity to earn income, and if state taxes aren't deductible than federal taxes distort those decisions and artificially promotes lower tax policy even when the higher tax policy expands the production possibilities curve and yield more income. The federal thumb should be off that scale and the only way to do that is full deductibility of state and local taxes. It's a lot like why business expenses are deductible, why you are only taxed on the net proceeds of capital (whether it is used as regular income or long-term gains), or why even hobby expenses are offset against hobby income.
compiler-guy 8y ago
If the feds charge X% and the state charges Y%, then it is entirely possible that x + Y > 100%. When SALT is deductible, it prevents that scenario. That isn't the case today, but it is well within the realm of possibility if, say, one the Democrats' maximum-tax-rate proposals are enacted (which I broadly support). The states and the feds historically don't coordinate taxes well, but the SALT deduction was one way of coordinating. It hasn't been replaced by anything, and it needs to be.
- moate 8y ago
  It will likely be replaced by greater demand from those states for Federal Funding if they're forced to lower their state taxes in order to offset constituent fears.
throwaway34241 8y ago
There are two separate arguments I can think of for deducting state taxes. First, the federal tax rates are heavily graduated on the grounds that it's less burdensome to tax people that make more money. But in states with high (also graduated) income taxes, high taxpayers aren't personally making that money (in any meaningful way), nor are they generally getting it back from a proportionally higher amount of government services. States are essentially redistributing income from high-income taxpayers to beneficiaries of social insurance programs and state residents overall. From that perspective, it might make more sense to tax the increased level of state services as income to those who receive it. With a flat federal tax it would make no difference in total collections, but with the graduated federal income tax this would be a much lower on average tax rate. Second is much simpler: most of the state government spending is on education, social services etc... things that are in line with tax-deductible charities. So it's not inconsistent to have state taxes be deductible too (of course getting rid of both deductions is also an option).
jliptzin 8y ago
States should pay federal taxes out of their own budgets. How the individual states decide to collect that revenue from their residents is up to them. There should not be individual taxes paid to the federal government and to state governments which now results in some degree of double taxation due to the elimination of SALT deductions. After all, the people do not choose the President, the states do. Each state has a certain number of electors in the electoral college and they can allocate those electors to the candidates as they see fit. In most states that happens to coincide with state's election in which the popular vote of the state determines all the electors (some states split electoral votes) but it doesn't have to be that way (see National Popular Vote Interstate Compact). Additionally, the Senate does not represent the people, it represents the states. That's why there's huge power imbalances among people in the Senate living in California vs. Wyoming, for example. The supreme court is chosen by the President and confirmed by the Senate. The only branch of federal government chosen by and representing the people is the House. So if the people are not even directly choosing the major branches of the federal government, they should not be directly paying taxes to it.
- jrs235 8y ago
  >Additionally, the Senate does not represent the people, it represents the states. While that is how is was originally designed, the 17th Amendment kinda of took that away. Originally the state legislatures elected their state's representatives (Senators) in the federal government. With the passing of the 17th Amendment, the direct election of Senators has contributed to the ridiculousness of our federal government. I would bet few state elected Senators (who actually represent their state governments) would ever pass federal laws/mandates that would punish a state and withhold funds if they didn't comply with the federal governments demands such as the National Minimum Drinking Age Act of 1984.

NotAnEconomist 8y ago

We should remove the California and New York subsidy: We subsidize their social services at the expense of the nation by allowing them to deduct local taxes from national taxes -- lowering their effective national tax rate as a reward for giving their residents back tax money via services. I'm for tax equity: stop subsidizing the wealthy states for hoarding their money.

mc32 8y ago
California usually complains its taxed pop sends more money in than it receives in federal largesse. That we are subsidizing “red states”. Not sure who’s right since both make these claims against each other.
- scarmig 8y ago
  Both. California and NY both are productive enough that they send far more money to the federal government than they get back. The state and local tax deduction makes up for this a little, but on net they still give far more than red states.
  - deleted 8y ago
    [deleted]
- NotAnEconomist 8y ago
  > California usually complains its taxed pop sends more money in than it receives in federal largesse. This isn't incompatible with what I said. California pays more than it receives, but less than it should given the benefits that it receives (and the agreed upon national tax rate). It's good that SALT has been limited, and the investment that the US has made in certain urban environments (eg, founding Silicon Valley) will be properly distributed across the country instead of hoarded by the states where those investments were made.
  - 0xffff2 8y ago
    >California pays more than it receives, but less than it should given the benefits that it receives How are you measuring benefits received if not by dollars received?

lsiebert 8y ago

I believe studies have shown that wealthy people aren't dramatically affected by tax rates in terms of where they live. So this seems to be more about where people say they live. Per this, 98% of millionares don't move based on income tax: https://www.citylab.com/equity/2016/06/do-taxes-really-cause-the-rich-to-move/487835/ https://www.citylab.com/equity/2016/06/do-taxes-really-cause...

myrandomcomment 8y ago

As a personal point, my taxes went up $18K because of this change. It is my personal belief that the change in the tax code here was specifically targeted blue states for political reasons by the republicans. My wife and I are thinking about leaving after the kid finishes school. The interesting thing is the long term consequences might be that enough people leave NY and CA and move to traditional red states to change them to blue. To be clear we were already thinking about moving before this change. This just add one more reason.

jayess 8y ago
So you're upset that you have to actually pay the high taxes you voted for, and because of that, you want to move to a low-tax state to vote for the same policies, because you're bitter about having to pay the taxes you voted for? F that. Stay in your high-tax state and deal with the consequences of your own decisions.
- myrandomcomment 8y ago
  I have paid millions in taxes over the years and I have no issue doing so. What I take issue is that this change in the tax code was only done as a punishment by those in power against those with a different set of political belief. That is the fundamental issue here. We are bring our country down with this system of politics that has become so toxic that you do not see the person you disagree with politicly as anything more than someone to be crushed. (The venom of your comment is an example). The founding fathers (one of which I am a direct descendant of) very much believed in civil discourse and using the right people for the right job. Washington appointed people he very much disliked because they were the expert the job needed, outside of his personal or political views. Up until the time of Newt Gingrich who is somewhat responsible for this current environment, our representatives in general understood the art of the compromise. Personally I tend to be a libertarian and want the government out of most things. However I do except that fact that some form of taxes are a necessary thing in for any country to exist. I would like to see them line up in a more fair way, flat taxes on all income over a given amount, VAT for non-food, non-essential items, etc. Most of the way we tax is broken. A prime example in CA is property taxes. When my family and I moved last, our search for a home was limited to 5 parts of the Bay Area because of schools. If you want your kid to go to a great school, buy in a rich area as the schools are funded by property taxes. Seems to me it would be better to share that money equally across the state. It would help uplift everyone. Edit: spelling

rconti 8y ago

Headline should be "High-tax states like California and New York do not like it when you pretend to live elsewhere in order to avoid taxes." Every example seemed to be about people who were trying to dodge taxes while still actually having the "high tax" state as a de-facto primary residence.

compiler-guy 8y ago
Where "every example" is better phrased as, "There are a wide variety of living situations that involve two states; and some look more like domociling oneself in one, rather than the other." Yes, some of these examples were pretty likely fraud, but some also seem like real moves that the tax auditors weren't happy about.
adrianmonk 8y ago
Yeah, I expected this article to be about leaving. Instead it's about pretending to leave.
exegete 8y ago
At least in the case of New York they still tax non-residents on income earned from New York. (I realize it may be less for non-residents than residents). It seems strange that I am legally obligated to pay taxes to a State but have no vote in the choosing representatives who levy those taxes.
- kgwgk 8y ago
  Non-residents pay city/state sales taxes as well, and that doesn’t give voting rights either.
- rconti 8y ago
  That's a good point. That's a thing in California too. There's a 540NR for reporting non-resident income earned in California. I guess it never seemed 'unfair' to me because when I was a non-resident I was a student who spent most of my time in CA, and that's where I worked, so it seemed logical. In some more complicated situations where you technically earn money in the state even though you don't have a home there, I could see how it would feel unfair. (I can't think of such a situation off the top of my head, but I'm sure they exist.. actually the athlete example might be a good one).

ThomPete 8y ago

Ive said it before. The rich dont pay income tax because they dont have an income, they use long term capital gains and carried interest. Not sure why I am getting downvoted. Did I say anything factually wrong?

almost_usual 8y ago
They do pay property tax..
- cptskippy 8y ago
  Only if they can't avoid it.
- ThomPete 8y ago
  Property tax is nothing compared to the income tax you can end up paying. And again carried interest.
- ceejayoz 8y ago
  They try not to. Our local billionaire refused to pay his property taxes for a while because geese pooped on his lakefront lawn. https://www.democratandchronicle.com/story/news/2017/10/23/tom-golisano-billionaire-witholds-taxes-canandaigua-lake-geese-paychex/790888001/ https://www.democratandchronicle.com/story/news/2017/10/23/t...
dahdum 8y ago
The underlying theory is that the corporation generating those gains or dividends was already taxed on that income before distribution. Most economists love the idea of a 0% corporate income tax, which would likely be paired with LTCG going to the earned income rate. Unfortunately it sounds too much like a "handout" to be politically viable.
- conanbatt 8y ago
  Ding ding. Corporate taxes as a policy is one of the incredibles where economics and politics clash complete.y

itchyjunk 8y ago

So the states are not making it hard to leave but making it hard to pretend to leave?

deleted 8y ago

[deleted]

tracker1 8y ago

I thought everyone wanted the rich to pay their fair share? This change mostly affects the rich, it's even in the title of TFA. It's where the richest in the country live that is most affected. Personally, I'd like to see income taxes removed entirely in favor of sales/import/export taxes.

conanbatt 8y ago
I never went deep into this idea: why would sales/import export taxes be any better? Sales are regressive taxes, and import/export are distortive af.
- tracker1 8y ago
  Mainly that it is a simpler system that is easier to control with less bureaucracy. Today it would probably also hold to money transfers out of the country. I'm mostly a proponent of a minimalist government, pragmatically speaking. I'm a proponent of laws and systems that increase personal liberty and minimize bureaucracy. I accept that there may be some distortion and it isn't exactly fair. But the deductions in the current system aren't exactly fair either.
  - conanbatt 8y ago
    Land taxes are the best for that. They are impossible to avoid, very easy and predictable to levvy, and are way more representational, fair and non-distortive taxes.
    - tracker1 8y ago
      I'm also not a fan of property taxes for individuals... It may be impractical, but if someone is able to live on their own, purchased land with no interaction with the outside world, they shouldn't be at risk of losing property for simply continuing to live.
      - conanbatt 8y ago

jayess 8y ago

So people in high tax states vote for higher taxes, then complain when they have to actually pay those taxes?

moate 8y ago
Nobody votes for "higher taxes" they vote for "better services". Also, it's a pretty bold assumption that NY and CA voters were in favor of the party that changed federal policy affecting their taxes. This is a confederalism vs federalism issue. If you believe in a strong Federal government, support the lowering of the SALT. If you believe that states are best at determining how to support their residents, oppose it.
jandrese 8y ago
New York and California went for Hillary, so they didn't vote for these increases.
- niij 8y ago
  GP was referring to higher state taxes. I believe. People in those states voted for higher state taxes and got it, but now that they can't deduct them from federal income tax, it's starting to sting.
  - moate 8y ago
    But the two are tied. The assumption was that the local tax increases wouldn't be as burdensome on the tax payer in those states because it would be offset by the SALT deduction at the federal level. The whole picture can be considered. Someone living in NJ could easily be offered a tax increase from a state lawmaker, feel that there is a benefit to them in the service that tax will pay for, do the math and realize that with the SALT deduction, they wouldn't be paying any extra money in taxes for their services. Changing the SALT deduction is what changes the math here. They weren't voting for "higher taxes" they were voting for "more services".
    - niij 8y ago

asabjorn 8y ago

It is worthwhile looking at the mechanics of the individual and collective US perspective. Individual in high-tax-state: From an individual perspective living in a high tax state like California, not being able to deduct state taxes in excess of $10000 from federal taxes is effectively a tax increase. For federal US as a collective: For the US as a federal whole deducting an increased state tax from federal taxes is effectively a reduction of the federal tax percentage, especially when states vote for increasing taxes to fund projects that are not delegated from democratic consensus at the federal level. Capping the deduction at $10k per individual makes it equal for all citizens regardless of which state they live in. This is therefore in some ways a fight between competing visions of what the US should be.

Causality1 8y ago

Headline is misleading. Should be "High tax states like California and New York make it hard for the rich to fake leaving".

luxuryballs 8y ago

for anyone else who couldn’t view due to ad-block: http://archive.is/awD3C http://archive.is/awD3C

Tsubasachan 8y ago

Rich people don't leave because of taxes, they have money after all. They can pay. California and New York are places were the rich and famous WANT to be. Its also coincedentally the places were they make their fortunes. Alabama could abolish taxes and the 5% aren't moving there.

hopler 8y ago

Headline doesn't match article. the article explains how it's easy to fake residency for tax purposes, buy putting a few cheap props I the low tax state. Judges don't understand that things that are precious to low wealth individuals are easy for wealthy individuals to buy, cheap relative to the tax bills. The first example was the $400K tax cancelled because the guy hired a dogsitter in Texas.

doggydogs94 8y ago

Totally eliminating the SALT deduction would end this discussion.

ykevinator 8y ago

I don't mind taxes, I hate waste. New York has the best schools libraries and sidewalks. I wish we didn't blow billions on stupid stuff.

mac01021 8y ago

Pretty bad title. tldr: if you don't actually cut all ties (property holdings and business dealings) with your state of origin, they my try to tax you as though you reside there still.