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> It is my personal belief that the change in the tax code here was specifically targeted blue states for political reasons by the republicans While this is d

• BurritoAlPastor 8y ago
  Where do the states get money to operate, if not taxes?
  • darawk 8y ago
    I'm not saying states shouldn't levy taxes. I'm saying that state taxes shouldn't diminish federal taxes. Under the old system, if your home state charged say, a 10% income tax, that would reduce your federally taxable income by 10%. That means that states could essentially eat a chunk of the revenue that would otherwise have gone to the federal government.
    • jrs235 8y ago
      What the Republicans should have done was get rid of the federal income tax, have all taxes apportioned, and leave it to the states to decide how they wish to collect the revenue needed to pay the federal government.
      • darawk 8y ago
        That's certainly an interesting proposal that seems reasonable to me. But I think we both know it's way too radical to be remotely politically feasible. I'd vote for it if I could though.
      • DevX101 8y ago
        Republicans would never do this. Republican states are net recipients of federal money. Wealthy democratic states are net givers of federal money. Poor states like Mississipi are funded in large part by the wealth democratic states that their politicians like to attack.
      • conanbatt 8y ago
        It might be a good idea to do it this way, but it is a very radical change with high chances of errors. What if 10 states enact some abhorrent legislation and makes them broke, or collect no taxes? I'd think this kind of change requires constitution ammendment level coordination.
        • dsfyu404ed 8y ago
          > have all taxes apportioned, and leave it to the states to decide how they wish to collect the revenue needed to pay the federal government. Let them crash and burn and serve as an example of the kind of policy you shouldn't enact. There's 50 states and interstate migration is not restricted. At a national level people do very much have the ability to pick one of the 49 other ships if the one they are on is sinking. Sure it would suck for the people who don't see the writing on the wall when their state is going down but I think it would be less damaging in the long term than the status quo.
          • conanbatt 8y ago
            Well you will need plenty of states to vote this change, and I think they would vote against it, even if on paper it gives them more economic power and independence.
      • jdhn 8y ago
    • thaumasiotes 8y ago
      > Under the old system, if your home state charged say, a 10% income tax, that would reduce your federally taxable income by 10%. No, it would reduce federally taxable income by more than 10%, because an income tax will lower income levels in the state. Even after eliminating the deduction for local taxes, the state income tax is lowering federal tax receipts. States can always eat a chunk of the revenue that would otherwise have gone to the federal government, by destroying that revenue.
      • darawk 8y ago
        I'm not sure I follow you. How can they eat the federal government's revenue by destroying income if it can't be deducted? Are you saying that the economic equilibrium of a higher income tax will be lower pre-tax incomes? That's certainly an interesting theory, though it doesn't comport with any of the empirical data.
        • thaumasiotes 8y ago
          > How can they eat the federal government's revenue by destroying income if it can't be deducted? Because you can't collect taxes on income that doesn't exist, obviously. > Are you saying that the economic equilibrium of a higher income tax will be lower pre-tax incomes? That's certainly an interesting theory, though it doesn't comport with any of the empirical data. Yes, of course that's what I'm saying. This is the same idea as how taxing oil sales will necessarily lower the dollar volume of oil sales. What model are you aware of that doesn't directly imply this?
          • darawk 8y ago
            The model where the highest tax states have the highest incomes, and the lowest tax states have the lowest incomes. I.e. the one in which we actually live.
            • thaumasiotes 8y ago
              That model doesn't say anything about the effect of taxes. You can just as easily say that high incomes cause high taxes. Is that all the "empirical data" you were thinking of?
    • dragonwriter 8y ago
      > Under the old system, if your home state charged say, a 10% income tax, that would reduce your federally taxable income by 10% And under the new system, it would do exactly the same thing, unless your income is over $100,000/yr, because it's simply designed to adversely effect the political calculus for upper-income taxes, both to reduce political pressure for tax progressivity at the state level and to reduce the viability of high-cost-of-living communities. Lots of people defending the policy here are acting as if it was a principled rejection of the SALT deduction rather than a calculated strategic limitation on its applicability, and are defending a policy that doesn't exist instead of the actual policy.
  • kbenson 8y ago
    I think what's being referred to was the ability to write off state taxes, which lowered your overall net income in the government's eyes, and thus what you were responsible for paying. It's not that states shouldn't be able to tax, it's that this particular write-off made higher state taxes more palatable at the expense of Federal taxes.
• themagician 8y ago
  Why should federal taxes take priority over state? If the state is able to successfully tax its citizens and keep things closer to home—ultimately needing less support from the federal government—shouldn’t that be a good thing? In a way it seems like double taxation. In some limited instances you may actually be paying twice for the same thing.
  • darawk 8y ago
    > Why should federal taxes take priority over state? If the state is able to successfully tax its citizens and keep things closer to home—ultimately needing less support from the federal government—shouldn’t that be a good thing? I'm not sure i'd say that they should take priority per se, but they shouldn't funge against each other, and the federal government was there first, in the case of income. Under the old system, if a state introduced an income tax, that would proportionally decrease the federal government's revenue collection from their tax base. That's not a very good system. If a state wants to tax, they should tax, but that shouldn't then reduce the federal government's ability to collect taxes from those same people.
    • thaumasiotes 8y ago
      > If a state wants to tax, they should tax, but that shouldn't then reduce the federal government's ability to collect taxes from those same people. I don't understand this. Any tax a state levies on its residents will necessarily reduce the federal government's ability to collect taxes from those same people, because it will make those people poorer.
      • darawk 8y ago
        How so? The current system is income-based, not wealth based. Under the current system, where you cannot deduct state taxes, the federal government's revenue is not reduced by state taxes at all (after the $10,000 limit).
  • adrianmonk 8y ago
    I think it's the other way around. The question should be why state taxes should take priority over federal taxes. And my answer is they shouldn't. If you can deduct state taxes from federal income taxes, then any increase in state tax rates will take some revenue away from the federal government. If your income is X, why not just have the federal government take Y% and the state take Z%, and have those numbers be independent, so that the total tax you pay is (Y+Z)%? If you want to have higher state taxes to provide more services to residents of the state, that's perfectly reasonable, but why should it be the federal government's role to soften the blow of a state-level policy decision?
• deleted 8y ago
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• jrs235 8y ago
  >state goverments, by enacting an income tax of their own, could essentially steal part of the federal government's tax revenue Funny that it is the red states that tend to get more federal dollars returned/pumped into their states than they contribute. It's ridiculous to say the the blue states are stealing. >There's really no good reason for this. Republicans typically talking about being for smaller [Federal] government should like that the [blue] states are trying to solve the problems most important and local to them via their own means.
  • darawk 8y ago
    > Funny that it is the red states that tend to get more federal dollars returned/pumped into their states than they contribute. It's ridiculous to say the the blue states are stealing. While I 100% agree that red states are the welfare queens of our current system, I don't think it's legitimate to consider that point in this context. The question we have to ask is what is the technocratically correct structure here. If states want to collect tax, that's great, but it shouldn't come at the cost of federal revenue. > Republicans typically talking about being for smaller [Federal] government should like that the [blue] states are trying to solve the problems most important and local to them via their own means. There is sort of a reasonable case to be made here, but I think it has major incentive problems. If states were using the revenue they raised to replace federal funds, you might be able to make this case. But as a systemic organizational matter, I don't think i'd want the system to work this way. It's just not a very clean architecture - states are incentivized to levy income taxes more than they otherwise would because it imposes a lower cost on their citizens than other forms of taxes, because of this federal revenue issue. I don't think you want an incentive structure like that.
    • thegayngler 8y ago
      Actually, I do like this incentive structure when put in this way. I think incentivizing people to take responsibility for themselves with only limited amounts of help from the federal government is the right thing to do.
      • 8y ago
• joshuamorton 8y ago
  >While this is definitely true, as someone who also lives in a high tax state and is impacted by this change, it is the policy-wise correct way to do taxation. Given the amount of federal spending that is just grant money to states for things (not to mention the history of the US as a loose association of strongly governed states under a weak(er) federal government), I'm not sure I agree with this. If CA or NY lowered their taxes, they'd end up getting back a significant amount of the difference as increased federal grant money to the state. That's what happens in many lower tax states right now! By removing SALT, you change the calculation in a different way. CA doesn't need the money, so the government can spend it elsewhere. Its a different thing.
  • darawk 8y ago
    I'm not sure I follow your argument. The point i'm making is that, as a way to structure taxation, I don't think it makes sense for state taxes to funge against federal taxes. It creates incentive problems that distort policy decisions at the state level. If CA/NY/etc would get money back from the fedgov as grants, then they should do that. They shouldn't have this weird backdoor into grabbing part of the federal government's revenue.
    • joshuamorton 8y ago
      >It creates incentive problems that distort policy decisions at the state level. What are the negative outcomes of such policies? I'd argue that the outcomes are more self-sufficient state governments with less reliance on federal grant money. The question then is if that's something the federal government should encourage. I'm pretty sure a fiscal conservative would say yes. As would a states-rights conservative. Most tax policies are ways to encourage or discourage specific behaviors. Your "weird backdoor" is another person's "explicitly encouraged behavior". You've got to justify why the behavior is bad and should not be encouraged, and I don't think you've done that. You've just (I think) claimed its unfair, but every state works under the same federal government. They could all do the same stuff.
      • darawk 8y ago
• gnicholas 8y ago
  > State government's revenue collection shouldn't funge against the federal government's revenue collection. At an aggregate level, this argument makes some sense. But when you look at individuals who pay lots of tax, there actually is a good reason to allow a deduction from a tax policy perspective. States like CA and NYC have progressive income tax rates, so the people paying a lot (and whose deductions are being capped) are high-earners. If their incremental tax dollars were being used to essentially fund consumption-like services for high-earners, then it would be proper to deny a federal deduction. The argument would be: well, your state took taxes from rich people in order to fund fancy museums/opera houses, so we shouldn't allow a deduction for this sort of state-intermediated consumption. But CA and NY's high-earner taxes aren't used for this, for the most part. For example, CA's "millionaire's tax" (Prop 63) is specifically used to fund state-provided mental health services. Presumably none of the rich people who fund this actually receive these services because they already have their own doctors. Of course, these taxpayers do see an indirect benefit from the provision of social services, insofar as they help keep crime rates lower and such. But in general, the income taxes paid by high earners are not akin to consumption, which would be the tax policy argument that one would make if trying to get rid of the federal deduction.
  • darawk 8y ago
    I'm not sure how this makes the case that these things should come out of the federal government's pocket. If CA/NY want to levy a tax for mental health...then they should do that. They shouldn't get to arbitrarily take part of the federal government's revenue to accomplish it. At least, I don't see how you're making the case that they should be able to.
    • gnicholas 8y ago
      The point is that at an aggregate level, your argument makes some sense. The fed govt didn't choose to enact this plan, vis a vis the state govt. However, if you look at the fed govt versus the taxpayer, the calculus shifts. What if every rich person who pays the millionaire's tax voted against it and derives no pleasure from it? Why should they be forbidden a deduction from a tax policy perspective? Companies get unlimited SALT deduction, and until this law, people did too. We can even get tax credits for foreign taxes paid. The general rule is that if some govt took your money, you get to deduct it on your federal return. So if there's going to be an exception to this general rule, there should be a good tax policy reason for it.
• dragonwriter 8y ago
  > it is the policy-wise correct way to do taxation. If your intent of to artificially promote low tax and spending at the state level, yes; if, OTOH, you want the federal government to be neutral on state policy the correct way is full deductibility. So, yes, it's “policy-wise correct” for the misconceived policy goals behind it. > Under the old system, state goverments, by enacting an income tax of their own, could essentially steal part of the federal government's tax revenue. More accurately, under the old system states could tax as necessary to support the spending policy which create the environment in which people in the state are able to earn income without the federal government artificially disincentivizes policy that produces better net results if it happens to require higher taxes. (And, because it didn't even abandon deductibility but limited it to a fixed dollar amount per taxpayer, artificially discourages policy not just by the level of taxation, but the distribution, on top of artificially punishing states for a high local cost of living, where if they tax the same share of the same real—based on local costs—income as a lower CoL state will see more money taken by the feds.)
  • darawk 8y ago
    > If your intent of to artificially promote low tax and spending at the state level, yes, if you want the federal government to be neutral on state policy the correct way is full deductibility. This seems like a very odd definition of 'artificial'. The federal government says "we want 30% of your income". Why exactly should the state be able to pre-empt that? > More accurately, under the old system states could tax as necessary to support the spending policy which create the environment in which people in the state are able to earn income without the federal government artificially disincentivizes policy that produces better net results if it happens to require higher taxes. (And, because it didn't even abandon deductibility but limited it to a fixed dollar amount per taxpayer, artificially discourages policy not just by the level of taxation, but the distribution, on top of artificially punishing states for a high local cost of living, where if they tax the same share of the same real—based on local costs—income as a lower CoL state will see more money taken by the feds.) You keep using this word 'artificial', but I don't see much justification for it. I also don't see much evidence for "better net results", nor do I think that's even relevant here. If the states want to levy taxes, they should. But I see no serious argument put forward here for why those taxes should come at the expense of federal taxes.
• thegayngler 8y ago
  In theory, I agree. However, why should California and the rest of the blue states be financing the whole country when the other states can collect their own taxes to pay for disaster relief and other items they need. They are already getting more taxes back than they paid in. Blue states are getting screwed and really aren't getting adequate federal government representation at the levels their tax dollars and populations would in theory dictate they should have. Shouldn't states be more responsible for their own well being rather than what we have now a situation where states just offload their responsibility as a state to the federal government? ...and the states are subject to the whims of whomever is in power in the federal government at the time which has higher risk than people are accounting for and as you have already alluded to is being abused even if it ultimately is in theory the right policy?
  • mrfredward 8y ago
    >why should California and the rest of the blue states be financing the whole country The tax code doesn't say that blue states have to pay more, it says wealthy people have to pay more. As a result, wealthy states pay in more than they get out. Taxing the rich to fund social programs to help the poor means money will flow from Silicon Valley and Hollywood to rural West Virginia.
    • wutbrodo 8y ago
      Part of it isn't even "wealth" as much as it is "higher cost levels". There's no simple policy answer to this, but increasing marginal tax rates are meant to be a proxy for the diminishing marginal utility of money. In states with a higher price level, citizens are getting taxed at higher rates than their level of wealth would otherwise imply, just due to the inefficiency of the policy. It's the equivalent of failing to adjust for inflation, just spatially instead of across time. As I said though, there's no easy fix that let's you define cost levels in a principled way and adjust for them, so this isn't quite bad policy as much as an unfortunate imperfection in it.
      • elindbe2 8y ago
• akhilcacharya 8y ago
  This ends up a perfect example of doing the right thing for the wrong reason. The run-up to the tax cuts proved they didn't really care much about making the cut even close to revenue neutral (not that many tax cuts are, but...) except for folks who don't have favored status in their political philosophy - see also, the attempt to tax PhD tuition waivers.
• omegaworks 8y ago
  >There's really no good reason for this. My state taxes go to fund schools and roads. My federal taxes go to fund bombs, warplanes that can't fly in the rain, a failed drug war, and mass surveillance infrastructure. That is reason alone for the SALT.
  • ameister14 8y ago
    It's much more defensible to tax for war expenses than it is for schools. War expenses are necessary for the basic premise of a civilization's government - protection of property and life. Schools, not so much.
    • klipt 8y ago
      Why would you want to live in a country full of uneducated people?
      • ameister14 8y ago
        I wouldn't - I'm fine with paying taxes for schools; I just recognize that it's harder to justify.
        • omegaworks 8y ago
          What's hard to justify is your claim that the present military spending of our government is in any way a proportional response to actual threats to property and life. We outspend the next seven countries combined[1]. We could fully fund universal higher education with the money we spend on defense and with the remaining dollars still spend more than three times the amount that the next country does. https://www.pgpf.org/chart-archive/0053_defense-comparison https://www.pgpf.org/chart-archive/0053_defense-comparison
• klipt 8y ago
  > state goverments, by enacting an income tax of their own, could essentially steal part of the federal government's tax revenue They still can via payroll taxes. Since payroll taxes are a deduction for the company, not the employee, they're still deductible under the new tax code. With a state payroll tax, your state income tax would only need to cover non-payroll income (investments etc.) which would probably fall under the 10k limit for most people.
  • kgwgk 8y ago
    Do you mean introducing new payroll taxes? If I understand correctly there are some now levied by states for unemployment, training, and such, but there is only so much money that you can reasonably use for that.
    • klipt 8y ago
      Yes, I mean re-characterizing most income taxes as payroll taxes. E.g: Alice lives in Incometaxifornia, she makes $100,000 and pays 10% income tax ($10,000) to Incometaxifornia. The federal government wants to tax her on $100,000 even though her take home after state taxes is only $90,000. Bob lives in Payrolltaxifornia. He makes $90,000 and his employer pays payroll taxes of 11.11111...% ($10,000) to Payrolltaxifornia. The federal government only wants to tax him on $90,000, which is also his take home after state taxes. Payrolltaxifornia gets the same tax money as Incometaxifornia, but its citizens are taxed less by the fed. Clearly Payrolltaxifornia is a better place to live.
      • kgwgk 8y ago
        I would be extremely surprised if the “recategorization” you propose was legally possible.
        • klipt 8y ago
          Payroll taxes already exist in several states: https://en.wikipedia.org/wiki/Payroll_tax#United_States https://en.wikipedia.org/wiki/Payroll_tax#United_States and will continue to exist and be perfectly legal unless Congress passes a law against them.
• gok 8y ago
  As someone who also benefited from the old law, your analysis is dead on. The uncapped SALT deduction was morally indefensible. It makes no sense that earning a billion dollars in San Francisco meant you owe ~$60 million less to the federal government than earning a billion dollars in Seattle.
  • hopler 8y ago
    The economy-wrecking regressive mortgage tax deduction was preserved though, which shows that the tax reform was mainly a cheap abuse of the government to attack blue states for voting Democrat.
    • gok 8y ago
      Agreed; the mortgage interest deduction is stupid (although wildly popular, unfortunately)
      • sokoloff 8y ago
        I’m not sure it’s stupid. It puts owner occupied housing on (nearly) equal footing with landlord-owned property with respect to deductibility of mortgage interest. Disclaimer: yea, I use it, so of course I’m somewhat biased to think it’s not stupid.
    • toast0 8y ago
      Most 'regular' people would itemize if their mortgage interest + SALT + whatever random things were bigger than the standard deduction. Under the new rules, SALT + mortgage interest is unlikely to be close to the standard deduction. I expect the amount of mortgage interest deduction in tax year 2018 to be much smaller than tax year 2017.
• adrr 8y ago
  Calling it theft is like calling gift and church deductions theft but one key difference. State taxes are mandatory. Also if federal spending was equal to the tax revenues generated by the state, blue states could lower their taxes. 16th admendement should have never been repealed as it allowed the federal government to unfairly tax minority party controlled states.
• dmode 8y ago
  Aren't there plenty of other ways that state and local entities are taking money away from Federal government ? Example, charitable tax donation ? Also, hasn't the logic for income tax calculations and not charging income tax on capital gains been the theory of double taxation ? It seems to me if this was a good faith policy decision, then the Federal government would have eliminated all those deductions and also implemented income taxes on dividends and capital gains as they are already violating the double taxation rule. This is an absolutely abhorrent policy specifically targeted at blue states that already contribute more to the Federal coffers, without any underlying principle.
• clairity 8y ago
  > "Under the old system, state goverments, by enacting an income tax of their own, could essentially steal part of the federal government's tax revenue." this is such an odd statement. federal and state governments have no entitlement to any type or class of tax, so stealing is an inappropriate description. the federal government can collect taxes in any way congress decides (with implicit citizen support). with that said, the federal government should really be focused primarily on international relations/defense and mediating inter-state disputes (and certainly not on punitive politics like this). federal taxation should be commensurately limited, with states being the primary taxing authority and facilitator of governmental programs of the citizens' choosing (through state legislators).
  • roenxi 8y ago
    [not from the US, this argument is from first principles] There is an argument that SALT deductions distribute the burden of supporting Federal spending - mainly health & welfare [0] - away from high taxing states towards low-taxing states. Stereotypically, one might believe that this means fiscally conservative Republicans are subsidising fiscally extravagant Democratic states. That would be unfair because the Republicans should enjoy greater personal wealth due to their frugal choices. The obvious counterargument is that states like California, Illinois and New York are net contributors to the federal budget [1, 2, 3]. Personally, the SALT deduction is clearly a bad idea and the cap is completely appropriate, paying local taxes shouldn't remove a persons responsibility to the Federal system. However (since the overall system may well be biased against wealthy states) the removal of the deduction should have been paired with a commensurate reduction in the tax take so the net tax payed by individuals didn't change. [0] https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget [1] https://en.wikipedia.org/wiki/Federal_tax_revenue_by_state https://en.wikipedia.org/wiki/Federal_tax_revenue_by_state [2] https://en.wikipedia.org/wiki/Federal_taxation_and_spending_by_state https://en.wikipedia.org/wiki/Federal_taxation_and_spending_... [3] https://en.wikipedia.org/wiki/Cook_Partisan_Voting_Index https://en.wikipedia.org/wiki/Cook_Partisan_Voting_Index
    • deleted 8y ago
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