About That State and Local Tax Deduction

By James Kwak

A couple of days ago I criticized Mitt Romney for thinking that eliminating the deductions for mortgages on second homes and for state and local taxes would pay for his 20 percent rate cuts. But there’s a more important general point to be made.

The deduction for state and local taxes is a subsidy from the federal government to state and local governments. This is how it works: If you’re in the 35 percent tax bracket, for every $100 of taxes you pay to state and local governments, the federal government gives you $35. In other words, for every $100 of taxes levied, you pay $65 and Barack Obama pays $35. That’s called a subsidy. Without it, the state and local governments would only get $65—or they would have to raise taxes by over 50 percent, which would make you mad.

So eliminating this deduction basically transfers money back from states and municipalities to the federal government. The federal budget deficit goes down, but state and local budget gaps go up—meaning either higher taxes or lower services. (And these are the levels of government that pay for teachers, police, firefighters, etc.) So this is one of those solutions that helps the federal budget balance by hurting ordinary people.

That said, I still think we should get rid of the deduction because it’s a highly inefficient subsidy. It mainly benefits rich people because poor people tend not to itemize their deductions. (Their deductions aren’t big enough to be worth itemizing.) Since state taxes are not very progressive to begin with, this makes them even less progressive, or even regressive. Massachusetts, for example, basically has one tax rate—5.3 percent—so people who take the deduction are paying a lower effective rate than people who don’t take the deduction.

In addition, rich towns get bigger subsidies than poor towns, simply because they have higher property values and hence people pay higher property taxes. If Greenwich needs more money for its schools, it can increase property taxes. Residents might grumble, but they know that for every $2 they pay, the federal government is kicking in $1. In Hartford, not so much.

For these reasons, in White House Burning we recommend phasing out the state and local tax deduction entirely (p. 212). In order to reduce the damage to state and local finances, however, we recommend using half of the proceeds to fund direct grants to states and municipalities. If this were done using a population-based formula, the effect would be to reduce subsidies to Greenwich much more than to Hartford; it might even increase the amount of federal aid to poor cities, where relatively few people take the deduction today.

If, by contrast, you simply axe the deduction, you’re just transferring money from one level of government to another. At the least, that’s a problem you need to acknowledge—unless it’s a feature, not a bug.

57 responses to “About That State and Local Tax Deduction

  1. The subsidy is that -a subsidy – in your article you mention “.you pay $65 and Barack Obama pays $35.” ….Obama does not pay the difference/ let’s not mislead the ignorant….
    Lucy G

  2. Eh? I pay ALL my federal taxes and ALL my local taxes. The federal government doesn’t pay any of my local taxes for me. If the federal deduction goes away, this is just a tax increase. Your way of looking at things is rather skewed!

  3. I’m more-or-less with John Smith. Seems to me, you currently pay $A in state and local tax, and get 0.35 x $A in subsidy from the feds. If that deduction were eliminated, you would pay $A in state and local taxes and get $0 in subsidy from the feds. So 1) the state and local governments are not out any money, and 2) your taxes do in fact get raised, which “makes you made.”

    So you’re not really talking about ending any subsidy to the state and local governments, you’re talking about going ahead and incurring the tax increase and relocating the anger – onto the federal government instead of the state and local ones. I mean, I guess you could make some convoluted argument about tax incidence for why this is preferable, but that seems like what’s really going on.

  4. I think the point being that some days you are the windshield, and sometimes you are the bug.

  5. I’m also with RJK and John Smith here. Let’s look at it this way:

    Let’s say the federal government had a program where for every $100 in state taxes you paid, they sent you a pony. (Not a refund, but a real live pony.)

    The result would be that lots of people had lots of ponies. The states, however, would not be getting ponies as a result of this. They would get your tax dollars, and you would have ponies. If the government then said: sorry, we’re not giving you ponies any more for paying your state taxes, the states wouldn’t need to make any changes.

    Now that I read this, I’m only confusing things. But whatever.

  6. Notwithstanding my lousy typing skills, I want to explain my position a bit. Basically I think my explanation is to be preferred pretty much on the basis of Occam’s Razor – your explanation requires too many assumptions about how people would analyze the situation and how state and local tax policy would change as a result.

    Let’s take my position as an example. I live in California, so I pay about 9% in state and local tax, which given my salary is certainly worth itemizing over, given the federal deduction. If congress were to remove the deduction for state and local taxes, my taxes would increase by about 0.3 times my state tax bill, but the state and local revenue wouldn’t go down. Obama isn’t paying 30% of my state and local tax in that sense.

    For that to hold, I would have to look at my new overall effective tax rate, compare it to the prior year when I had the deduction, get mad, specifically blame my state and local governments for that, and petition in some fashion for a reduction of about 30% in my state tax. It seems much more realistic, and requires fewer assumptions about my psychology and policy preference, to assume that California would continue to receive its 9% and I would just resign myself to paying higher taxes (it would no longer be worth itemizing). Or at the very least, in comparing the two years’ tax bills, I would notice which portion (fed vs. state) went up and petition the appropriate set of representatives to reverse this policy, rather than trying to change my state’s behavior. I just don’t see a reason to prefer your explanation of the situation, James.

  7. I always KNEW President Obama was DA MAN…..paying my taxes for me~$$$$

    Thanks, President Obama….you have my vote~~

    Now, about that (relatively) FAT check my wife wrote the US Treasury a few days ago…..check # 1040…….can you believe that?

    @ James, keep on trekkin’ dude~ :)

  8. You can’t itemize state/local taxes under AMT. Given the number of people who pay AMT, I don’t think it would add up to much.

  9. Maybe a CPA should write the article next time James. As a CPA here are my thoughts… The taxpayer is out $35 when they lose their ability to take the state tax deduction. The government keeps the $35 and the states position is unchanged (i.e. the taxpayer still pays the same $100). Great last point here about AMT – many taxpayers are impacted by AMT, which does not allow the state tax deduction. Poor article James, you lost some credibility.

  10. I’m retired and have about the median income but I itemize because of my state and property taxes and mortgage interest. This would be a tax increase pure and simple for me. And I don’t think I am alone.

  11. we need more of Simon Johnson,and less of James Kwak

  12. James, are you advocating that it’s just fine to pay federal taxes on local income and property taxes? We’re taxed to the point of pain already – way past double jeopardy. I’m waiting for the assessment on breathing.

  13. James, perhaps Simon should proofread your drafts before you post them. Now I see why the lawyers in Washington make such a mess when they try to legislate on economic matters

  14. James is correct. His problem is that he assumes the reader understands AGI, deductions therefrom and taxable income. After calculating your AGI on your 1040, you subtract your itemized deductions. Your itemized deductions include you state, county and city income taxes. Once you have subtracted your deductions and credits if any, you arrive at your taxable income. Your taxable income is the amount of income that the IRS uses in its grid to determine the amount of federal income tax owed. The smaller your taxable income the less federal tax you pay. Deducting state and local income tax from you taxable income means you will pay less federal tax. If you were not able to deduct your state and local taxes your taxable income would be higher and you would owe more federal tax.

    Understanding this as a tax subsidy is what James is explaining. If you eliminate the deduction, you would pay both your state and local taxes and a higher federal tax. This means that you have less money at the end of the year in your pocket.

  15. This is something from the Atlantic I’ve really liked about Romney’s tax plan:

    “First, he extends all of the Bush tax cuts. Second, he cuts income tax rates an additional 20 percent. Third, he undoes the tax hikes and credits from Obamacare and the stimulus. Finally, he eliminates the capital gains tax for all but the richest households. The first three parts of this plan shower high-earners with most of the money. The last part is a bit of a fig leaf for the rest of us.”

  16. @ella – so how come NJ sends in more to the Feds and gets less…?

    So many predators, so little time….THOUSANDS of people conniving a million and one ways to STEAL…at this point, as I noted, why bother with *taxes*? The relationship between the Federal Reserve Board and US Treasury is direct….

    To play these sadistic games of extracting all money from all generations of labor since WWII is increasing the RISK that there won’t be a country with enough civic and social infrastructure left to conduct any business safely…gosh, we’re already at that point in many parts of the country!

    Seriously, WAKE UP! There is NOTHING LEFT TO TAKE and the trickle of currency to conduct commerce has been shut off – are you all retards or what?

  17. I’m with the majority here. James is correct that the deductability of state and local taxes has probably meant that states and municipalities are able to chare higher rates than they otherwise would. However, the likely impact of his suggestion, as others have said, is that people would be angry at the federal government for increasing their taxes, and not realize that they are now paying the full price of a subsidized state tax rate.

  18. SUBSIDIZED? I suppose next you’ll say that what I get to keep of MY MONEY is nothing but a subsidy. This is past ignorant, or a ploy to make citizens feel they’re lucky to live in a communist state. How many layers of taxes will be assessed from how many layers of government before we all just give up? At some point, it just isn’t worth being an honest taxpaying fool.

  19. No – you are lucky to live in a constitutional republic – which costs money to run and maintain it’s safety security and infrastructure (not to mention contract law).

  20. Let’s get back to what tanked all sadistic tax collections, shall we?

    http://www.rollingstone.com/politics/blogs/taibblog/free-10-million-loans-for-all-and-other-wall-street-notes-20120419

    And this is annoying, foreclosure melt down in USA, and this Kaplan dude is wearing a halo for his Haiti work:

    http://www.huffingtonpost.com/auren-kaplan/ubuntu-blox_b_1427315.html

    While USA States get ignored or targeted for more LOCAL tax squeeze – tax the homeless?:

    http://www.huffingtonpost.com/2012/04/19/homeless-children-disney-world_n_1420702.html

    Guess I answered my own question about the mental capacities of tax gamers – add another layer to the G-Rube – what fun!

  21. @Ian: “No – you are lucky to live in a constitutional republic – which costs money to run and maintain it’s safety security and infrastructure (not to mention contract law).”
    From what I see, Ian, the government is active in a lot more than “safety, security and infrastructure,” and contract law has been a golden parachute for class-action lawyers.
    Tell me, do I really need a black-box in my vehicle?

  22. @ James, my wife prepares our tax returns, but your post got me thinking. I went to fetch the return, and decided to number-crunch, nevertheless.

    By FAR, the majority of our Schedule A deductions is comprised by the deduction for state income taxes, our real property taxes, and ad valorem personal property taxes.

    You argue this deduction should disappear, perhaps you are correct, I am not sure.

    I am in a position to say what my tax liability for 2011 would be, absent this deduction. My increase federal income tax liability would be $1,283 HIGHER than it was recorded on the actual return.

    With two teenagers, and other responsibilities, this is not an insignificant amount for me, or for my wife, who also works.

    With the FMV of my home, the tax assessment, to my knowledge, hasn’t correspondingly declined due to a reset of assessed value.
    Shouldn’t this be the case?

    Anyway, maybe your book proposes an income phaseout for the state and local tax deduction, or A REDUCTION based on an AGI floor?

    I read your “phaseout” to read something else than one based on accession to wealth, however.

    You also stated something in your post that I found something of a curiosity, with this remark:

    “It mainly benefits rich people because poor people tend not to itemize their deductions. (Their deductions aren’t big enough to be worth itemizing.)”

    Poor people, as I define this term from reading Annie’s link above on the homeless lining the motels of Rt 192 in Orlando area, don’t generally file or are required to file federal income tax returns.

    Anyhow, not to quibble.

    With .27 cents of every dollar going to some tax authority or another, like many reporting on this thread, I feel like I am paying enough already, so please, maybe you may want to consider eliminating something really abusive, like EBE, which is often inflated and junk. :)

  23. Daniel Barkalow

    It’s a bit misguided to think that, just because the net effect is the same as the federal government paying state and local governments, that’s what’s going on in all senses; the issue is that, once you start considering possible changes to tax policy, the effects of those changes depend on whether the federal government sends a check to states or it lets you satisfy your tax obligations by sending that money to the state instead of the IRS. In any situation involving government, especially when it involves multiple governments, the effect of inertia is very important. If the fed eliminated the deduction and sent the money to states, and the states lowered taxes to match, it would even out. But people would see their federal taxes going up and complain about the federal government, and state governments would see their current budget problems going away and no complaints, and wouldn’t lower taxes. And the federal government would see that state governments aren’t lowering their tax rates, and wouldn’t feel any more like sending extra aid to them. And the federal government would then just be collecting more money from taxpayers, who would be complaining, so they’d drop the whole plan. And localities which were considering lowering taxes in the expectation of getting money from the fed directly would have grave doubts about whether that was actually going to happen. Any plan that looks bad without coordinated action on the part of all state and local governments and the federal government is pretty much impossible.

  24. @ Texasjune, that black-box in the car legislative proposal got my goat , too.

    What next, spying robotic “insects” peering into the bathroom while we’re using it?

    Geez, Louise!!!!

  25. Moses Herzog

    Honest to got I don’t want to be “snarky” here, and I don’t even want to be “insults masquerading as intelligence”, which is really what “snarkiness” is, isn’t it?? BUT……

    As a proud card carrying member of the sexist jerks club, it really pains me to say that other than the core post by Mr. Kwak, commenter ella is the only one in this whole thread that comes close to resembling intelligence, and in fact was very intelligent and explained well.

    The saddest thing is, the concept James explains above, which isn’t immediately self-evident, but isn’t rocket science either, you would hope that if anyone could get it, it would be the regular readers of this site who I would like to think are smarter than your average American voter. I am afraid that the extremely steep graded mountain of comprehension disability of the American voter that Mr. Kwak is trying to climb here with his highly valuable message and treasure of a book was proved unclimbable decades ago. It was proved unclimbable when a man named _______ ran for President and said the following ( I lift this verbatim from the gentleman’s book):

    “The second key at the convention was my acceptance speech. I knew this would be a crucial chance to reintroduce myself to a lot of Americans—and maybe my last chance if I didn’t get it right. It would be the most important speech of my career. We went through a lot of drafts and a lot of themes. One that ended up in the speech, famously, was this: ‘Let’s tell the truth. Mr. Reagan will raise taxes and so will I. He won’t tell you. I just did.’

    A lot of people have told me that was a mistake, and I notice no one has tried it since. But I thought it was right at the time and I still think so today. As a question of public policy, voters had to confront the need to raise revenue. The federal deficit in 1983 had exceeded $200 billion, a record, causing the highest real interest rates in history and creating huge debts for our children. It was hard to explain to people that, in effect, their taxes had gone up a lot, only they were paying in the form of higher interest rates, soaring trade deficits, and an explosion of payments on the federal debt.

    Then, as a matter of political style, I have always believed that voters respect honesty. We had spent a lot of time during the early stages of the campaign actually drafting a federal budget that was honest and balanced—an exercise that has seldom been repeated in subsequent campaigns—and I knew it would require higher revenues. Explaining that plainly to voters was a gamble, but I knew I would feel better about myself because I was telling the truth.”

    Americans chose record budget deficits in 1984 instead of the truth. Mr. Kwak, If you want some empathy for all the ignorant and illogical cheap shots you took in this post, I suggest you make a phone call to the man I quoted from his book.

  26. Around here, if you trust too much. You don’t make too many birthdays.
    ————-John Wayne, (in a movie cause, he wasn’t linear enough to think of that himself)

  27. The relationship between the Federal Reserve Board and US Treasury reveals the TRUTH that *tax policy* is nothing other than social engineering.

    Misanthropes, mercenaries and the merciless – hooligans and punks. Yeah, let’s RAISE the kids to fit in….

  28. The government and the military create the debt to ‘protect’ our freedoms and make policies and so forth. And then the tax paying citizens pay for it with their jobs or benefits or just their money whether they like the . High price to pay for an American citizen.

  29. Banking cartels control the government, it seems, not vice versa. Unless and until this fundamental relationship is abrogated, not much will fundamentally change.

    Repealing the Federal Reserve Act of 1913 in this Congress, has about a good of chance of coming to fruition as a mega lotto drawing odds……what 170 million to one<<??

    I can see interest payments as only a HUGE drag on everything, but I am sure some readers on this blog can justify interest expense as something relating to a highest good.

    The weekend is here, and wishing you all nice weather.

  30. who so stupid as to pay taxes? just barter and make booze…you’ll be fine. if some lawman is “crazy enuf to come callin’” juist “whip out old Betty and let loose.”

  31. @woop – why the need to repeal something that, in operation in the world, has proven to be insane and irrelevant?

  32. @ Annie, because respect for the RULE OF LAW is important in a civilized society, imho. :)

    Without reverence for this principle, what we obtain are bad results, frauds justifying devastating wars, the targeted removal of perceived enemies who in fact are scapegoats, and the near total impunity the architects and actors of these machinations enjoy.

  33. @woop – but they don’t respect the rule of law, as you observed. So you have to come up with something else. They can’t be shamed, appealed to, convinced….so what’s the despot’s psychological weakness? Being told that they are irrelevant….they flip out at that attack on their one-percentageness (is that a word? :-)) and start shooting. So you back them into that corner prepared for their psycho response…

  34. @ Annie: But their psycho response tends to be violent, repressive, totalitarian, brutal, creepy, and over-done. This is no way to run anything.

    The only man capable of doing what you want is George Washington,
    and he isn’t available.

  35. @woop – Right, a predictable response – are you saying that we can’t contain their psycho response? If we can’t now, then let’s get cracking on that problem and figure out how to do it since *rule of law* is, obviously, not an option – they LAUGH at the *idea* that rule of law pertains to them…

    Scheesh, a big part of the war game is just turning off the lights, so to speak, and the *virtual* part goes away – with no PROOF that it existed – get it? They have no proof – especially the derivatives part. If they are so damn “rich” from their bazillions of *derivatives*, WTF are they doing going after the last egg-laying chicken of EDUCATED, HONEST LABOR through a rule of law that they call a *tax policy*!?

  36. shakedown street

    So we hear the same message over and over again from the peanut gallery. Face it, there is nothing you can do to fix, or change, your current situation, evil has presided over you and will suck the life blood from you like a leach. You can’t even doing anything spectacular to bring attention to yourself or the public about being a captured entity, even a suicide bank robber has a better chance of striking it rich before you, you are doomed and it is only a matter of negative time before you completely lose your mind and a matter of real time before you become extinct and will no longer have a voice to be heard. You are not alone, he captured a lot of people and only a few country’s have escaped his wrath, and I doubt you would fair any better in those country’s because you can still join the military here and live that life. But go on crying wolf and perhaps someone will take you seriously, because your words certainly exhibit no intelligent life in this community. But they do flow out your mouth at the same rate as a greedy politician but with a less tasty cheesecake.

  37. @shakedown – Wow, you’re tough. I’d be interested in reading more about what you really think. At least, I think I would.

  38. LOL… I took some time off from this blog because of Kwak’s stupid and uninformed posts, as well as, the comments section had become an incomprehensible mess (yes @annie I am looking at you).

    Thought I would re-visit as Professor Johnson began his new book tour – hoping things were better now. Lo and behold, nope! Same as before!

    Kwak’s writing is still stupid and uninformed (James, pls stick to Law) and the comments section is still an incomprehensible mess.

    Cheers and goodbye for another spell.

  39. I think most people think of charitable contributions as subsidized (“This $100 is really costing me $65, so what the heck, I’ll give $100″). Ipso facto, if the deduction for charity were removed, there would likely be an overall pullback in charitable contributions, perhaps just about equal to the subsidy (“This year, since it’s not deductible, I’ll give $65″).

    But most people don’t see state and local taxes as subsidized. A difference of viewpoint. Would anyone really expect lower state and local taxes, because “hey, my town’s subsidy is gone”? No, most everyone’s perspective would be that the federal government was now taking more in federal taxes.

    I’ll go with the majority, because James’ viewpoint will just not be held by many taxpayers. And the commonly-held viewpoint matters on this. This reminds me of the tortured “double taxation” capital gains arguments–”tortured” because the same crowd never applies similar arguments to other tax issues.

  40. shakedown street

    Why thank you, Its possible, there is a whole lot of trouble in this town though.

    This is how my wife feels about it all.

  41. @woop – There you go – the psychos can’t contain themselves :-)

    SO predictable!

    THEY can threaten you, but you can’t threaten them…?! LOL

    How hard can it be to take them out when it’s been pre-ordained that they will be as if they never were….how much power can a delusion have on physics…?

  42. @ Annie, I thought maybe he was mad at you….LOL Hard to tell with such a blowhard. I feel bad for his wife…HA!

  43. @woop – I have no clue who he is, but, it appears he believes he knows me – hmmm, Patriot Act goon…? Or the last Goat Man from Mkultra?

    Here’s an idea for Nasdeq psychos – get all the *wives* to build the robots since it’s the human being part of women that they have no use for…

    http://www.pbs.org/newshour/bb/business/jan-june12/makingsense_04-20.html

    “….Mortal mind subservient to matter is destined to become increasingly material and consequently to suffer eventual personality extinction…”

    Outcome was always pre-ordained – on some level, damn boring when it’s so predictable, no?

  44. 20 years ago – just as another virtual reality was being created which elevated the non-human to dominance over the human – which is where, imo, we are today – *things* using only the various parts of people, which is why it matters not how anyone gets discarded – although there is that group of sadists (really? we can’t even agree on eliminating that gene pool because they make up a big proportion of the filthy rich who are above the rule of law?) who find it sexually entertaining to torture them first:

    http://billmoyers.com/2012/04/19/moyers-moment-1991-elie-wiesel-on-if-humanity-is-good-or-evil/

    Had a conversation on Earth Day (April 22nd since 1972) with a person who didn’t get the *statement* the people were making who were on horseback going to the battle against men in tanks….

    so there you go, the element of surprise :-)))

    rattle and hum…

  45. Moses Herzog

    Is anyone curious why TBTF bankers abuse investors and depositors on a daily basis??? Why their behavior on derivatives, CDS, overdraft charges, ATM charges never changes?? Because when human beings act in a way that is severely damaging to society and people around them, and they are “punished” with a light slap on the wrist, or asked to toss a nickel from their pocket, they won’t adjust their behavior. They go on and on and on. The stop lights are not installed at the dangerous intersection, until after some child dies. It is debated and debated that “Oh we need to put some stoplights at that dangerous intersection” of the town, but it is never deemed worthy until someone dies. And when people are never punished for outrageous behavior, they start to act like animals.

  46. @Moses. Yea, some like at GSA – I hear they’re not all like that though.

  47. Oh that Obama! If he’d never been elected, none of this would be happening!/snark

  48. My best guess is Robert Reich would oppose any suggestion to repeal the deduction for state and local taxes, but I have yet to ask him.

    In any event, speaking of President Obama, Mr. Reich does have some VERY good suggestions to the President, as listed below.

    One pertinent is the GASOLINE ripoff by sharpie-speculators on the Street, and elsewhere, etc., and the tool(s) available to shut it down with a directive to the Commodity Futures Trading Commission, as FDR would have long ago done, imo. We’re getting taken to the cleaners on gasoline pricing.

    Reich is also mega-correct = AUSTERITY is a BIG BUMMER and an utter FAILURE, except for those (mega-wealth) buying public assets with a view to a financial bonanza.

    http://www.guardian.co.uk/commentisfree/cifamerica/2012/apr/23/lesson-obama-europe-failed-austerity

    In the meanwhile, KEEP the state and local tax deduction, so sorry, my friend, James Kwak.

  49. There’s the promise of lower taxes and people think it will solve all problems. On the contrary, cut on taxes will affect the available cash for local government services. It’s true, the federal government can indeed provide subsidy but that won’t last long unless there’s an unlimited source of cash for the feds. It’s so wrong to focus on cutting taxes specially in a bad economy because it will dry-up the government coffers. Why not focus instead on funding more small businesses and improving local economy. Strengthen the grass roots, give people enough confidence to look for jobs, get hired and start spending again. Stop importing and expert more! Buy from our own and let our economy become strong from the bottom up.

  50. James is right that this is a federal subsidy of higher state income taxes, but he is (probably) wrong that removing this tax expenditure would be a transfer from state revenue to federal revenue.

    A simple example; say John lives is a state with a 10% state income tax rate, his federal income tax rate for income over $100K is 25%, and his taxable income (for all deductions other than the state income tax deduction) is $200K.

    Assuming the state income tax deduction exists, he would pay 10% of $200K = $20K of state income tax. His new federal taxable income would be $200K – $20K = $180K, and he would pay 25% of $180K = $45K federal income tax. Total tax paid = $45K + $20K = $65K; combined effective tax rate = $65K / $200K = 32.5%

    Now take away the state income tax deduction; he still pays 10% of $200K = $20K of state income tax. Now, though, his federal taxable income stays $200K, and he pays 25% of $200K = $50K federal income tax. Total tax paid = $50K + $20K = $70K; combined effective tax rate = $70K / $200K = 35%.

    So, barring the state making federal income tax paid a deduction on state taxable income, removing the state income tax deduction from federal taxes would not reduce state revenue; it would increase federal revenue. This is the point of removing tax expenditures! This is the same effect seen be removing the mortgage deduction, or the health insurance deduction; increasing federal taxable income = increasing federal revenue.

    That this policy is a federal subsidy of higher state income taxes can be seen by what happens if a state goes from 0% income tax to 10% income tax under current law. Originally, John (from above example) would be paying $0 state income tax and $50K federal tax for a total of $50K income tax paid. After the change, he would be paying $20K state income tax and $45K federal tax for a total of $65K income tax paid. His income tax paid would go up by $15K, the state would get $20K, and the federal revenue would go down $5K, so this policy could be seen as a $5K subsidy from the federal government to the state government in John’s case.

  51. If austerity doesn’t get us, perhaps YUM food brand offerings WILL…LOL

    http://www.cnbc.com/id/47169352

    Now, the Chinese and Indian populations will be dealing with obesity, diabetes, heart illness, and all the rest from these poison junk food offerings……the largest “growth” markets for these firms peddling their various infirmities.

    And the sad part is, the people eating these foods seem to REALLY be enjoying the taste.

  52. So, MattJ, why is New Jersey a donor of tax $$ to the Federal Government?

    If your state is receiving more than a $1.00 in federal funding for every dollar you spend in taxes, feel free to give it back to those of us funding your arrogance.

    New Mexico $2.03
    Mississipp¬i $2.02
    Alaska $1.84
    Louisiana $1.78
    West Virginia $1.76
    North Dakota $1.68
    Alabama $1.66
    South Dakota $1.53
    Kentucky $1.51
    Virginia $1.51
    Montana $1.47
    Hawaii $1.44
    Maine $1.41
    Arkansas $1.41
    Oklahoma $1.36
    South Carolina $1.35
    Missouri $1.32
    Maryland $1.30
    Tennessee $1.27
    Idaho $1.21
    Arizona $1.19
    Kansas $1.12
    Wyoming $1.11
    Iowa $1.10
    Nebraska $1.10
    Vermont $1.08
    North Carolina $1.08
    Pennsylvan¬ia $1.07
    Utah $1.07
    Indiana $1.05
    Ohio $1.05
    Georgia $1.01
    Rhode Island $1.00
    Florida $0.97
    Texas $0.94
    Oregon $0.93
    Michigan $0.92
    Washington $0.88
    Wisconsin $0.86
    Massachuse¬tts $0.82
    Colorado $0.81
    New York $0.79
    California $0.78
    Delaware $0.77
    Illinois $0.75
    Minnesota $0.72
    New Hampshire $0.71
    Connecticu¬t $0.69
    Nevada $0.65
    New Jersey $0.61

  53. Here’s where your argument goes wrong-in the first paragraph. NONE of that money belongs to Barack Obama. Governments can operate on much less than they do now. They would want to raise taxes in your scenario just to continue siphoning funds to cronies (green energy, ACORN, Muslim Brotherhood, etc.)-and themselves. Any of us would be jailed for doing what governments do with other people’s money.

  54. American taxpayers will not see a profit from the $700bn (£433bn) bail-out that Congress passed at the height of the financial crisis, a government watchdog has warned. The current estimate of the eventual loss that taxpayers will be left with from the Troubled Asset Relief Program (TARP) is $60bn, according to a report from the watchdog for the programme. “It is a widely held misconception that TARP will make a profit,” said Christy Romero, the inspector general for TARP. Taxpayers are still owed $119bn from TARP, with the majority of that still tied up in the rescue of insurer AIG, carmaker General Motors and mortgage lender Ally Financial. The figure fell $133bn in January, according to the watchdog’s quarterly report.

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9227106/US-taxpayers-will-not-make-profit-from-bailing-out-banks-says-TARP-inspector-general-Christy-Romero.html

  55. States like NJ, where I live, send money to subsidize places with far less private sector and business acumen than we (and our neighbors in PA, NY and DE) possess. For this, since we are more liberal than other states that can talk the private sector talk but can’t walk the walk, we are regularly pilloried by the Mitch McConnells and Trent Lotts of the world for not understanding the power of entrepreneurs. (This applies as well to Silicon Valley, where the President got 70% of the vote).

    All this means I have zero interest in giving up at least the deductibility of my subsidy to Trent, Mitch and the good ole boys. If I have to pay your bills, at least have the grace to thank me.

  56. @ Tim, WELL SAID!!