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Bush's plan to eliminate state tax deduction

Old 12-07-04, 11:07 AM
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Bush's plan to eliminate state tax deduction

WASHINGTON - As President Bush lays the groundwork for a possible overhaul of the U.S. tax code, one option under consideration would deal its biggest financial blow to citizens of "blue" states such as California and New York.
Some conservative activists are urging the administration to scrap the federal deduction for state and local taxes as part of a broader plan to revamp the nation's tax system.

Although the proposal would hurt some taxpayers in nearly every state, it would hit hardest in states with higher-than-average income levels and bigger-than-average state and local tax burdens. High on the list are a number of states that supported Democrat John Kerry in last month's presidential election.

California and New York, for example, have top state income tax rates of 9.3 percent and 6.5 percent respectively; "red" states Florida and Texas, meanwhile, have no state income tax.

http://www.sun-sentinel.com/business...ness-headlines

LA times had a big story on this but it need regestration.

Few questions for you guys-

1. Is this raising taxes in the eyes of Bush supporters? (Like Kerry's plan to roll back the Bush deductions was a tax increase)

2. Is this a plan to punish the blue states?

3. Is if fair/right to tax taxes?
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Old 12-07-04, 11:24 AM
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It may be bad news for folks in the largest state (population) in the union, but the people in the second largest state won't mind.

Why should Texas folks in the same economic bracket pay more federal income taxes than folks in California?

Will the California moderator care to address the fairness of that?

Last edited by classicman2; 12-07-04 at 11:30 AM.
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Old 12-07-04, 11:26 AM
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Wouldn't that collect more money from the rich? Isn't that good?

As the article said, "for a possible overhaul of the U.S. tax code". This is not the only provision so it's probably wise to wait to see the entire package.

If this provision is enacted I do like that people would still have the ability to move to a state that has a tax code more to their liking. As opposed to just about everything else the federal government has made the same.
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Old 12-07-04, 11:41 AM
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Originally Posted by classicman2
It may be bad news for folks in the largest state (population) in the union, but the people in the second largest state won't mind.

Why should Texas folks in the same economic bracket pay more federal income taxes than folks in California?

Will the California moderator care to address the fairness of that?


Are you serious? "economic bracket" is money that you have (after deductions). State taxes are not money you have control over. A Texan can spend this "gap money" in any way they like.

How can you not understand this?
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Old 12-07-04, 11:43 AM
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x- clearly a trial balloon. The admin was backing away from this yesterday.

The post is more to see if people here agree or disagree with this idea.
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Old 12-07-04, 11:46 AM
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That would really suck.
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Old 12-07-04, 11:50 AM
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Plus, California continues to be a supporter state. California continues yearly to be one of the states that recieve back the lowest amount of our tax dollars that we send to Washington.
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Old 12-07-04, 11:51 AM
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Originally Posted by bfrank
Few questions for you guys-

1. Is this raising taxes in the eyes of Bush supporters? (Like Kerry's plan to roll back the Bush deductions was a tax increase)

2. Is this a plan to punish the blue states?

3. Is if fair/right to tax taxes?
If the tax rates are then adjusted to be "revenue neutral" then it isn't a tax increase, it is a change in who is taxed and who is rewarded. Why should you be rewarded for living in a high tax state.

2. ?? Sure, it is an evil plan to punish those who voted for Kerry. Happy now?

3. Social Security taxes are taxed. State and local sales taxes are taxed. Alcohol, cigarette, and all other luxury and excise taxes are taxed. Why are state income and property taxes exemptions. If not state/local taxes were deductible (and federal tax rates were lowered for revenue neutrality) then it wouldn't matter what package of taxes your state used to raise money. Now, it is advantageous to you if state is (for same total) high income tax, low sales tax. But low income tax, high sales tax might be better for the economy. Treating some kinds of state taxes differently than others obviously leads to distortion.
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Old 12-07-04, 11:53 AM
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Originally Posted by bfrank
Plus, California continues to be a supporter state. California continues yearly to be one of the states that recieve back the lowest amount of our tax dollars that we send to Washington.
I think Michigan is worse. We are almost dead last of 50, and have been last in some years.
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Old 12-07-04, 11:55 AM
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If the state of California wants to have a state income tax - then so be it.

The state of Texas doesn't have a state income tax.

Therefore, they can't deduct from their federal income tax what a citizen of California can. In other words, the citizen of Texas who makes amount of money as the citizen of California, and has the same number of exemptions pays more money in federal taxes.

bfrank,

How can you not grasp that?

Red Dog,

I thought you, being a renter, opposed the Home Mortgage Interest Deduction. The same principal applies. You're making someone making more federal income taxes based on something other than income.
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Old 12-07-04, 12:05 PM
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Originally Posted by classicman2

Red Dog,

I thought you, being a renter, opposed the Home Mortgage Interest Deduction. The same principal applies. You're making someone making more federal income taxes based on something other than income.


Don't know what HMID has to do with this. The problem with federal income taxation is that it does not take into account locale. The person making 100K where you live pays the same as someone making 100K where I live. That's hardly fair because those 100Ks are very very different. Removing the state tax deduction (which I don't take since I still take the standard, but am getting close to the point where I will start itemizing and taking it) only makes this locality issue worse.
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Old 12-07-04, 12:07 PM
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Originally Posted by Red Dog
Don't know what HMID has to do with this. The problem with federal income taxation is that it does not take into account locale. The person making 100K where you live pays the same as someone making 100K where I live. That's hardly fair because those 100Ks are very very different. Removing the state tax deduction (which I don't take since I still take the standard, but am getting close to the point where I will start itemizing and taking it) only makes this locality issue worse.
You have a choice - you do believe in choices. MOVE!!.
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Old 12-07-04, 12:11 PM
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Originally Posted by classicman2
You have a choice - you do believe in choices. MOVE!!.

Silly answer. If someone making 100K in DC moves to OK, they surely will not make 100K doing the same thing; they would make substantially less. Moving doesn't solve this problem - on a macro or micro level. The fact remains - 100K in DC does not equal 100K in OK. Acc'd to the federal government, it is the same.
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Old 12-07-04, 12:11 PM
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Won't affect me

But riddle me this. For a state like Oregon who has no sales tax but just and income tax, and for Washington who has no income tax, but has a sales tax, doesn't this take care of the inequity?

Personally, I think it would be a good way for people to get angry about how much they are getting raped by the states.

And if it isn't fair to tax taxes, then the same argument would apply to estate taxes (which have already been taxed) and sales taxes.
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Old 12-07-04, 12:11 PM
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Originally Posted by OldDude
If the tax rates are then adjusted to be "revenue neutral" then it isn't a tax increase, it is a change in who is taxed and who is rewarded. Why should you be rewarded for living in a high tax state.
Re: the reward for living in a high state.

Well obviously I'm biased (being in NY), but if you scrap the deduction, then what about many other "itemized" deductions that are "rewards".

In the same argument, why should my neighbor that makes the same amount of money as me pay less in taxes just because he bought his house for $50k more, or at an interest rate 1% higher?
That = a bigger deduction for interest, even though we have the same "income".

It does make you scratch your head, where he came up with the idea.
Just like the new recent law (I think) about sales tax being deductible, but only your sales tax OR your state tax whichever is higher.
Obviously this is a new deduction for someone in Texas, but a ZERO deduction for someone in Cali or NY.
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Old 12-07-04, 12:16 PM
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Silly answer. If someone making 100K in DC moves to OK, they surely will not make 100K doing the same thing; they would make substantially less. Moving doesn't solve this problem - on a macro or micro level. The fact remains - 100K in DC does not equal 100K in OK. Acc'd to the federal government, it is the same.
So you believe it's fair for people in Texas (making the same amount of money) to pay more in federal income taxes than people in California do simply because California wishes to burden their citizens with a state income tax. Therefore, you believe the federal government should remedy the citizen's plight by making them pay less federal taxes than do the citizens of Texas in the same circumstances.
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Old 12-07-04, 12:16 PM
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Originally Posted by kvrdave

Personally, I think it would be a good way for people to get angry about how much they are getting raped by the states.

I'd rather get raped by the Commonwealth of Virginia than the Feds. Ideally, we would pay a majority of our income taxes to the state, not the federal government. Even better, this would create a more equitable system on the locality issue. Of course, that day will never come since the 10th amendment has been tossed into the trash and Congress basically has the power to do anything they want under the Commerce Clause and Tax/Spending Clause bribery (so the Feds need the cash more than the states).
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Old 12-07-04, 12:22 PM
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We're hearing the socialist view from a strange source - aren't we?
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Old 12-07-04, 12:29 PM
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Originally Posted by classicman2
So you believe it's fair for people in Texas (making the same amount of money) to pay more in federal income taxes than people in California do simply because California wishes to burden their citizens with a state income tax. Therefore, you believe the federal government should remedy the citizen's plight by making them pay less federal taxes than do the citizens of Texas in the same circumstances.


When I said it would suck, I meant it would suck for me down the road. You know I do think about myself from time to time and how things effect me.

What you describe isn't fair either but it simply creates an even larger problem when talking about what a dollar can buy in different areas of the country. The Federal Government pays its employees different amounts based on where they work. It should not be hard to craft a Locality Tax Schedule similar to the Locality General Schedule.

There are many things that aren't fair about the tax system that I disagree with. The locality problem is one of them.

I'll ignore the socialist comment.
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Old 12-07-04, 12:34 PM
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The Federal Government pays its employees different amounts based on where they work. It should not be hard to craft a Locality Tax Schedule similar to the Locality General Schedule.
Do they pay all federal employees or just those affected by the LGS?

I know they use to pay a differential for all employees who worked in Alaska - I don't believe Hawaii

The LGS only applied to jobs that had lots of civilian competetion - RNs & physicans to name two.
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Old 12-07-04, 12:35 PM
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Originally Posted by classicman2
Do they pay all federal employees or just those affected by the LGS?

I know they use to pay a differential for all employees who worked in Alaska - I don't believe Hawaii

The LGS only applied to jobs that had lots of civilian competetion - RNs & physicans to name two.

http://www.opm.gov/oca/04tables/indexGS.asp
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Old 12-07-04, 12:46 PM
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Hmm! I wasn't aware of that. When did they start that?

I know it use to piss me off when my wife (an RN) and I worked for the federal government, and I made considerably less money than she did - and, I was a higher GS grade and had more time in service.
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Old 12-07-04, 12:46 PM
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It's all one big giant redistribution of wealth no matter HOW you look at it.

I think it definitely sucks for those in no income tax states to pay more in federal taxes, but if you had a state income tax, you'd pay more too - right?

The whole damn code needs rewriting.

I do like that it would affect blue states most - but that's just because I'm an evil, cold hearted conservative who says if you like to pay taxes - keep on paying em! If you LIKE to tax others - start with yourself
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Old 12-07-04, 12:50 PM
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Originally Posted by classicman2
Hmm! I wasn't aware of that. When did they start that?

I know it use to piss me off when my wife (an RN) and I worked for the federal government, and I made considerably less money than she did - and, I was a higher GS grade and had more time in service.

At the very least, 8 years ago.
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Old 12-07-04, 01:06 PM
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Originally Posted by classicman2
If the state of California wants to have a state income tax - then so be it.

The state of Texas doesn't have a state income tax.

Therefore, they can't deduct from their federal income tax what a citizen of California can. In other words, the citizen of Texas who makes amount of money as the citizen of California, and has the same number of exemptions pays more money in federal taxes.
Moses didn't come down from Sinai and tell California to collect taxes through an income tax and tell Texas to collect it through other means. One of the benefits of collecting state tax revenues through an income tax is that its deductible to itemizing federal taxpayers. The Texas legsilature presumably considered that advantage -- as well as all of the other advantages and disadvantages of an income tax -- in determining which tax scheme to enact. If they made the wrong choice, that's for the peopel of Texas to decide. It's not an argument in favor of scrapping an advantage that they chose not to allow the people of Texas to avail themselves of.

As for the underlying question -- should we scrap the state tax deduction -- that's a tough one. It's actually a pretty regressive tax deduction, since 1) lower income federal taxpayers are less likely to itemize, and 2) even if they do itemize, they are paying lower federal marginal rates, so they are getting less value for their deduction. On the other hand, Illinois has a 3% income tax, so I like being able to deduct that from my federal taxes.
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