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."
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..
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.
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.
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.
I don't see your argument. Texas improved it's economy by digging out the fossil fuels. It's not like they automatically get oil out of a natural spring and just have to fill up their tankers with it.
Building oil pumps doesn't matter if there is no oil to be pumped. Therefore having the economic viability to build oil pumps is a geographic advantage.
Building a canal doesn't matter if it doesn't let you reach the center of the continent. Therefore the economic viability to build a canal is a geographic advantage.
Building an irrigation system doesn't matter if you cannot control the irrigation.
Therefore the economic viability to build a precise irrigation system is a geographic advantage.
Those investments would be completely worthless without the geographic advantage that is needed to optimally use them. Nails don't hammer themselves but without nails there is nothing to hammer. Yet you seem to be focusing on only one of those and implying that someone else's hammer is not a real hammer, they just found the nails already in place in the furniture.
I'm not denying that some states got lucky on natural resources or geography, I'm saying that some states have also invested local resources in developing their economy. They do this by levying taxes on the state and local level and building infrastructure.
SALT deductions incentivize states and localities to do this. They're still incentivizing this, since the deductions were only capped and not eliminated. Do you think states were over-incentivized to invest in their own infrastructure previously?
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”.
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.
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)
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.
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.
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."