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> 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 tax
by 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 agoDo 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 agoYes, 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 agoI would be extremely surprised if the “recategorization” you propose was legally possible.
- klipt 8y agoPayroll 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.
- kgwgk 8y agoThey are special taxes used to fund employment-related things. Why do you think they could be increased significantly and used to fund general spending, replacing income taxes?
- kgwgk 8y agoNevermind, it seems that states are actually trying this work-around (at least NY has introduced something in that direction): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3089423 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3089423 The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the 2017 Tax Legislation III. STATE GOVERNMENT RESPONSES TO THE SALT DEDUCTION CAP B. Increased Use of Payroll Taxes