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SALT deductions (at least on Income Tax) are essentially meant to prevent double-taxation. Why can the federal government tax money that can only possibly be i

SALT deductions (at least on Income Tax) are essentially meant to prevent double-taxation. Why can the federal government tax money that can only possibly be in my pocket if I've committed tax fraud against my state? If I make 100K and my state takes 5%, I now only have 95K. There's no option for me not to pay 5K to my state. (and no, for most people uprooting yourself for tax purposes isn't a tenable option) Now, I have to pay the federal government. Why should I be on the hook to pay taxes on 100K in income, when I truly only earned 95K? With sales tax, you could theoretically not buy things subject to sales tax. With real estate tax, you could in theory just rent. Yes, in practice it's not like taxes are so punitive that > 100% of my income will be demanded, but it seems unfair to levy such taxes. This assumes, of course, that the state has the first dibs on a person's income. I'd be just as happy if the federal government amended the constitution saying that all states levying income tax must deduct federal taxes paid from taxable income amounts.

bhupy 6y ago
Taxation is just the price of the basket of services a government offers to its citizens. We don't deduct prices of other goods & services (food, clothing, rent, transportation) from our salaries before paying taxes on them, do we? It's no more double taxation to pay all of the different governments for their different basket of services as it is "double payment" to pay different service providers the price of their goods & services independent of one another.
- JediWing 6y ago
  What other service providers throw you in jail if you don't pay?
  - bhupy 6y ago
    I'm not sure what you're arguing here. If the argument is that taxation is too high, then advocate for cutting taxes. If the argument that taxes are too low, advocate for raising them. Pick a side!
    - JediWing 6y ago
      I'm arguing that having the same income taxed twice due to a quirk in the structure of the US government is unfair, that is all. Edit: it's not really on the income taxed, it's on the money already spent to pay a seperate income tax.
      - bhupy 6y ago
        I mean, that's largely the folly of having high Federal taxes. One of the political parties has made it is mission to reduce those, thereby blunting the supposed unfairness of this quirky structure.
        JediWing 6y ago
        To my mind, how much (rate) the federal government taxes your income is orthogonal to what (taxable income) the federal government is taxing. (Though obviously good policy need to consider how they interact) Overall I believe the wealthy are not taxed enough, but I think that even though SALT deductions benefit the wealthy, a taxable base should still be calculated rationally and fairly. It's more of a principle-based than result-based argument.
        bhupy 6y ago
        Keep in mind that part of the problem in the US is that the wealthy pay an outsized portion of the taxes (top 1% nearly half the income taxes at both State and Federal levels). Other OECD countries are able to fund more progressive spending by (counterintuitively) taxing more regressively via broad-tax-base middle class taxes and VAT.
        srtjstjsj 6y ago
        How is that a problem? The top 1% (0.1% and 0.01%, really) have an outsize excess income.
        6y ago
- bobthepanda 6y ago
  There are actually deductions for the mortgage and pre-tax benefits for transportation.
  - bhupy 6y ago
    Correct, and mortgage deductions are highly criticized for being a subsidy for the rich.. Pre-tax benefits for transportation are also not universal, and the State governments can deduct Federal taxes in their calculations if they want to follow that model.
    - JediWing 6y ago
      All of these are also highly variable, and it's impossible to say how much is "needed" as a deduction. That gets into the government having to make value judgements on individual spending. With a deduction for state tax, it's a lot more cut and dried "hey I don't have this money anymore because the state whose laws you officially sanction by virtue of their being part of your union is going to throw me in jail if I don't pay them".
      - bhupy 6y ago
        Rent? variable? It's one of the most predictable expenditures. I'm not sure if that's more or less cut and dried than "hey I don't have this money anymore because I had to pay money to not be literally homeless". Deductions are an approach to reducing tax burden, but ultimately we have to decide if more taxes or less taxes are the way to operate our societies. The federalized tax system allows different states to experiment with different approaches, and these kinds of deductions incentivize behavior in one direction.
        JediWing 6y ago
        Variable from person-to-person based upon the quality of housing they choose to live in, not variable month-to-month. Should someone living in a luxury penthouse suite at 15K+ a month get to deduct his rent at 100%, as well as closet-sized studio apartment? If not, where is the line drawn? This is what I mean when I talk about value-based judgements based on variable rates. Should I be able to deduct only what is literally the cheapest rent in my city? What if the cheapest apartment is full, and there's no way I could possibly get that rate? Should it be the cheapest AVAILABLE rate? Would this then impact prices knowing that the lowest rate drives tax-deductibility for all citizens? This is the labyrinthine decision tree that opens up when deducting things like rent, food, clothing, etc. Also, if SALT deductions truly incentivized punitive state taxes, why are so many states still charging 0% tax rates?
- dragonwriter 6y ago
  > Taxation is just the price of the basket of services a government offers to its citizens. No, those are user fees. > We don't deduct prices of other goods & services (food, clothing, rent, transportation) from our salaries before paying taxes on them, do we? Yes, we do, with a choice to take a simplified default amount. But with SALT, I think the better argument is that the absence of the deductions (or limitations on them, which work the same way at some point) causes federal taxation to artificially incentivize low-tax state policy since it can switch policies from net expected positive to net expected negative value before to after consideration of federal taxation, whereas with SALT deeuctibility federal income taxation does not have any effect on the direction, only the magnitude, of expected value of state tax and spending policy.
lotsofpulp 6y ago
>SALT deductions (at least on Income Tax) are essentially meant to prevent double-taxation. This is not double taxation. https://www.investopedia.com/terms/d/double_taxation.asp https://www.investopedia.com/terms/d/double_taxation.asp The federal government charges you x% for its services. The state government charges you y% for its services. The city government charges you z% for its services. The county government charges you a% of some arbitrary "assessed" property value. These are different entities who have the power to tax you. >Why can the federal government tax money that can only possibly be in my pocket if I've committed tax fraud against my state? What? This would only be the case if total taxes on your income exceed 100%. And typically, that would then be up to the courts to decide who is the senior creditor that deserves to get paid. >Now, I have to pay the federal government. Why should I be on the hook to pay taxes on 100K in income, when I truly only earned 95K? I disagree that you truly earned $95k. You earned $100k. In theory, it could be problematic if all of your taxes add up to >100% of income, but I think that's more incentive for people to participate in their government and make sure that doesn't happen. But I don't see why a state that mismanages their defined benefit pensions and infrastructure, and hence has high taxes due to shifting costs from 30 years ago to today, should be getting a benefit for it.
- JediWing 6y ago
  Your link seems to me to clearly define this as double taxation > Double taxation is a tax principle referring to income taxes paid twice on the same source of income. and later > Double taxation also occurs in international trade or investment when the same income is taxed in two different countries. This state/federal dichotomy for the purpose of taxation is really no different than two countries taxing the same source of income. Two entities are taxing the same income, and both must be paid. This is double taxation by the definition of the source you brought into the discussion! > What? This would only be the case if total taxes on your income exceed 100%. And typically, that would then be up to the courts to decide who is the senior creditor that deserves to get paid. No, it's true regardless of how much I've paid to my state. The 5K is gone. I don't have it. It's deducted from my paycheck. It never hits my bank account. I'm being asked to pay taxes on money I've used to pay taxes. > I disagree that you truly earned $95k. You earned $100k. You're probably right that earned was an imprecise phrasing for this. Received, perhaps? Regardless, the point still stands. And to be clear I'm arguing from the standpoint of what I believe the principles ought to be, not of what the law is. As you state, when asking for money that I truly don't have due to contradicting demands on my income, courts would decide who receives what. I'm just arguing that the law ought to define that hierarchy, and any money already used to pay taxes ought not be taxed again by the secondary payee.
mrep 6y ago
Why should you get deduct $5,000 from your federal taxes when someone in a no income tax state like washington cannot deduct the other state taxes they pay that make up for not having a state income tax? Edit: after looking it up, I'm wrong, you can deduct most state and local taxes such as property, income, and sales, although you can only pick either income or sales so it does incentivize states to only use one. It still encourages wasteful tax spending though as my comment below explains.
- takeda 6y ago
  Because people in other states can keep that $5,000 in their pocket. SALT prevented you from being taxed on money that you never get. SALT is not a tax credit (you won't get $5,000 back), it is a deduction which means the $5,000 is not taxed, because it was already used to pay a tax.
  - mrep 6y ago
    But you do get that money, you get it and then it goes to the state and local government to provide you with your state and local services. As a hypothetical, imagine 1 state which has very low taxes, say 5k on 100k income and does not provide very many services requiring the citizens to use post income tax money on all the goods and services they require such as rent, food, and healthcare. Now imagine another state which has super high taxes, say 40k on 100k of income, but the state massively subsidies their rent, food, gives them completely free healthcare and such. Why should the person in the high tax state get to deduct the state and local taxes used to pay for similar services as the low tax one who has to pay for it with post federal income tax money? To put it in more economic terms, SALT deductions incentivize state and local governments to increase taxes and spending to the point that the marginal utility of $1 provided by the government to citizens to equal the marginal cost of citizens taxes which include the SALT deductions or (1 / (1 - citizens marginal federal income tax rate)). That literally creates waste because it incentivizes states and local governments to increase taxes to the point where citizens are seeing equal benefits with overall tax burdens at the cost of reducing the federal governments budget which ironically then encourages them to increase taxes to make up for it which then lowers the denominator in the states marginal utility to overall tax burden calculation in a positive feedback loop.

bhupy 6y ago

Taxation is just the price of the basket of services a government offers to its citizens. We don't deduct prices of other goods & services (food, clothing, rent, transportation) from our salaries before paying taxes on them, do we? It's no more double taxation to pay all of the different governments for their different basket of services as it is "double payment" to pay different service providers the price of their goods & services independent of one another.

JediWing 6y ago
What other service providers throw you in jail if you don't pay?
- bhupy 6y ago
  I'm not sure what you're arguing here. If the argument is that taxation is too high, then advocate for cutting taxes. If the argument that taxes are too low, advocate for raising them. Pick a side!
  - JediWing 6y ago
    I'm arguing that having the same income taxed twice due to a quirk in the structure of the US government is unfair, that is all. Edit: it's not really on the income taxed, it's on the money already spent to pay a seperate income tax.
    - bhupy 6y ago
      I mean, that's largely the folly of having high Federal taxes. One of the political parties has made it is mission to reduce those, thereby blunting the supposed unfairness of this quirky structure.
      - JediWing 6y ago
        To my mind, how much (rate) the federal government taxes your income is orthogonal to what (taxable income) the federal government is taxing. (Though obviously good policy need to consider how they interact) Overall I believe the wealthy are not taxed enough, but I think that even though SALT deductions benefit the wealthy, a taxable base should still be calculated rationally and fairly. It's more of a principle-based than result-based argument.
        bhupy 6y ago
        Keep in mind that part of the problem in the US is that the wealthy pay an outsized portion of the taxes (top 1% nearly half the income taxes at both State and Federal levels). Other OECD countries are able to fund more progressive spending by (counterintuitively) taxing more regressively via broad-tax-base middle class taxes and VAT.
        srtjstjsj 6y ago
        How is that a problem? The top 1% (0.1% and 0.01%, really) have an outsize excess income.
        6y ago
bobthepanda 6y ago
There are actually deductions for the mortgage and pre-tax benefits for transportation.
- bhupy 6y ago
  Correct, and mortgage deductions are highly criticized for being a subsidy for the rich.. Pre-tax benefits for transportation are also not universal, and the State governments can deduct Federal taxes in their calculations if they want to follow that model.
  - JediWing 6y ago
    All of these are also highly variable, and it's impossible to say how much is "needed" as a deduction. That gets into the government having to make value judgements on individual spending. With a deduction for state tax, it's a lot more cut and dried "hey I don't have this money anymore because the state whose laws you officially sanction by virtue of their being part of your union is going to throw me in jail if I don't pay them".
    - bhupy 6y ago
      Rent? variable? It's one of the most predictable expenditures. I'm not sure if that's more or less cut and dried than "hey I don't have this money anymore because I had to pay money to not be literally homeless". Deductions are an approach to reducing tax burden, but ultimately we have to decide if more taxes or less taxes are the way to operate our societies. The federalized tax system allows different states to experiment with different approaches, and these kinds of deductions incentivize behavior in one direction.
      - JediWing 6y ago
        Variable from person-to-person based upon the quality of housing they choose to live in, not variable month-to-month. Should someone living in a luxury penthouse suite at 15K+ a month get to deduct his rent at 100%, as well as closet-sized studio apartment? If not, where is the line drawn? This is what I mean when I talk about value-based judgements based on variable rates. Should I be able to deduct only what is literally the cheapest rent in my city? What if the cheapest apartment is full, and there's no way I could possibly get that rate? Should it be the cheapest AVAILABLE rate? Would this then impact prices knowing that the lowest rate drives tax-deductibility for all citizens? This is the labyrinthine decision tree that opens up when deducting things like rent, food, clothing, etc. Also, if SALT deductions truly incentivized punitive state taxes, why are so many states still charging 0% tax rates?
dragonwriter 6y ago
> Taxation is just the price of the basket of services a government offers to its citizens. No, those are user fees. > We don't deduct prices of other goods & services (food, clothing, rent, transportation) from our salaries before paying taxes on them, do we? Yes, we do, with a choice to take a simplified default amount. But with SALT, I think the better argument is that the absence of the deductions (or limitations on them, which work the same way at some point) causes federal taxation to artificially incentivize low-tax state policy since it can switch policies from net expected positive to net expected negative value before to after consideration of federal taxation, whereas with SALT deeuctibility federal income taxation does not have any effect on the direction, only the magnitude, of expected value of state tax and spending policy.

lotsofpulp 6y ago

>SALT deductions (at least on Income Tax) are essentially meant to prevent double-taxation. This is not double taxation. https://www.investopedia.com/terms/d/double_taxation.asp https://www.investopedia.com/terms/d/double_taxation.asp The federal government charges you x% for its services. The state government charges you y% for its services. The city government charges you z% for its services. The county government charges you a% of some arbitrary "assessed" property value. These are different entities who have the power to tax you. >Why can the federal government tax money that can only possibly be in my pocket if I've committed tax fraud against my state? What? This would only be the case if total taxes on your income exceed 100%. And typically, that would then be up to the courts to decide who is the senior creditor that deserves to get paid. >Now, I have to pay the federal government. Why should I be on the hook to pay taxes on 100K in income, when I truly only earned 95K? I disagree that you truly earned $95k. You earned $100k. In theory, it could be problematic if all of your taxes add up to >100% of income, but I think that's more incentive for people to participate in their government and make sure that doesn't happen. But I don't see why a state that mismanages their defined benefit pensions and infrastructure, and hence has high taxes due to shifting costs from 30 years ago to today, should be getting a benefit for it.

JediWing 6y ago
Your link seems to me to clearly define this as double taxation > Double taxation is a tax principle referring to income taxes paid twice on the same source of income. and later > Double taxation also occurs in international trade or investment when the same income is taxed in two different countries. This state/federal dichotomy for the purpose of taxation is really no different than two countries taxing the same source of income. Two entities are taxing the same income, and both must be paid. This is double taxation by the definition of the source you brought into the discussion! > What? This would only be the case if total taxes on your income exceed 100%. And typically, that would then be up to the courts to decide who is the senior creditor that deserves to get paid. No, it's true regardless of how much I've paid to my state. The 5K is gone. I don't have it. It's deducted from my paycheck. It never hits my bank account. I'm being asked to pay taxes on money I've used to pay taxes. > I disagree that you truly earned $95k. You earned $100k. You're probably right that earned was an imprecise phrasing for this. Received, perhaps? Regardless, the point still stands. And to be clear I'm arguing from the standpoint of what I believe the principles ought to be, not of what the law is. As you state, when asking for money that I truly don't have due to contradicting demands on my income, courts would decide who receives what. I'm just arguing that the law ought to define that hierarchy, and any money already used to pay taxes ought not be taxed again by the secondary payee.

mrep 6y ago

Why should you get deduct $5,000 from your federal taxes when someone in a no income tax state like washington cannot deduct the other state taxes they pay that make up for not having a state income tax? Edit: after looking it up, I'm wrong, you can deduct most state and local taxes such as property, income, and sales, although you can only pick either income or sales so it does incentivize states to only use one. It still encourages wasteful tax spending though as my comment below explains.

takeda 6y ago
Because people in other states can keep that $5,000 in their pocket. SALT prevented you from being taxed on money that you never get. SALT is not a tax credit (you won't get $5,000 back), it is a deduction which means the $5,000 is not taxed, because it was already used to pay a tax.
- mrep 6y ago
  But you do get that money, you get it and then it goes to the state and local government to provide you with your state and local services. As a hypothetical, imagine 1 state which has very low taxes, say 5k on 100k income and does not provide very many services requiring the citizens to use post income tax money on all the goods and services they require such as rent, food, and healthcare. Now imagine another state which has super high taxes, say 40k on 100k of income, but the state massively subsidies their rent, food, gives them completely free healthcare and such. Why should the person in the high tax state get to deduct the state and local taxes used to pay for similar services as the low tax one who has to pay for it with post federal income tax money? To put it in more economic terms, SALT deductions incentivize state and local governments to increase taxes and spending to the point that the marginal utility of $1 provided by the government to citizens to equal the marginal cost of citizens taxes which include the SALT deductions or (1 / (1 - citizens marginal federal income tax rate)). That literally creates waste because it incentivizes states and local governments to increase taxes to the point where citizens are seeing equal benefits with overall tax burdens at the cost of reducing the federal governments budget which ironically then encourages them to increase taxes to make up for it which then lowers the denominator in the states marginal utility to overall tax burden calculation in a positive feedback loop.