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From: js2j@mhuxt.UUCP (sonntag)
Newsgroups: net.misc,net.politics
Subject: Re: State Tax Dedudction
Message-ID: <899@mhuxt.UUCP>
Date: Fri, 31-May-85 10:56:28 EDT
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Posted: Fri May 31 10:56:28 1985
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> >      Up till now, the federal government has been forcing people who live in
> > low-local-tax areas to subsidize the taxes of the people who choose to live
> > in the high-local-tax areas.  Disallowing state taxes as a deduction would
> > stop this.  Do you really think that it was fair for you to force all of the
> > people in the midwest to help pay your local taxes?  I don't.
> > -- 
> > Jeff Sonntag
> Am I just completely dense (don't answer that!)? How is it that the low-local
> tax areas are subsidizing the high-local-tax areas?  Everyone who itemizes
> gets to deduct their state tax.  Where does this subsidy business occur?
> Mike Clifford

     It works like this:  Person A, living in NYC, pays high local taxes.
Under current tax laws, they deduct this amount from their gross income,
reducing the amount of federal taxes they pay.  The net effect is that
their local tax costs them (1 - their marginal tax rate) * (nominal local tax)
instead of the full amount.  That difference is money which the federal
government doesn't receive; they know this will happen, and adjust tax rates
so that they get the total amount of money they want anyway.  This means,
of course, that federal tax rates must be higher than they would be otherwise
to make up the difference.  So all of the farmers in Nebraska, receiving 
*none* of the benefits which person A receives for his local taxes, have to
pay higher federal taxes to make up for person A's local-tax deduction.
      Those of you who think taxes should be *fair* should like this since
it *is* more fair than the current setup.
      Those of you who think taxes should come from the rich should like
this since the high-income people will be the ones primarily affected.
(the difference in taxes is: (their marginal federal tax rate) * (their
local tax).  The first term is progressive with income, the second is
usually linear, so the product should be *much* larger for high income
people than for low.)
-- 
Jeff Sonntag
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    "It doesn't matter what you wear,
     just as long as you are there." - Martha and the Vandellas