I remember most of the scrap misses an of import betoken virtually the province too local taxation deduction -- incentives.
Suppose you lot are inward the top, (roughly) 40% marginal federal taxation bracket. If you lot pay an extra $100 inward province taxes, you lot deduct $100 from income, too pay $40 less inward federal taxes. So, you lot genuinely alone pay $60 inward province taxes. The federal regime effectively transfers $40 to the province from taxpayers inward other states.
That's a large incentive to heighten coin equally deductible taxes from high-bracket taxation payers! This incentive doesn't operate if the province raises taxes from lower bracket taxpayers.
California's taxation system, for example, seems to response heartily to this incentive. California's income taxation charge per unit of measurement is highly progressive, topping out at 13.3%. As reported inward the Sacramento Bee
The province of California relies a lot on income taxes. The state of California gets 65% of its revenue from private income taxes, 22% from sales taxes, too 8% from corporate taxes.
The commons stories virtually California balance on its progressive, redistributionist politics, too at that spot is for certain much of that rhetoric around. But it also happens to live responding perfectly rationally to a strong incentive.
Conservatives cause got long objected to governments that pass other people's -- taxpayers' -- coin unwisely. But coin raised from taxpayers from other states, who create non vote inward your elections, provides doubly bad incentives.
This strikes me equally a strong economical declaration against deductibility of province too local taxes, that hasn't been made loudly enough. Of course of study no declaration (pro or con) based on incentives has been made loudly enough!
This strikes me equally theme of many things needing reform America. The New York Times report on astounding infrastructure costs rang a nerve. Most infrastructure is directed yesteryear province too local officials, who pass Federal money. Medicaid remains a matching fund -- the province spends a dollar, the federal regime chips inward a dollar. The movement to plow it inward to a block grant, which failed concluding summer, would cause got removed this incentive. Federal coin too province command is a mutual designing inward social programs, and John Cogan explains good the legal too institutional argue for this separation inward our history. But it leads to atrocious incentives.
Perhaps a full general reform lesson is that states should cause got to heighten the marginal dollar for anything from their ain voters.
PS. I was long for the deductibility of SALT on the grounds that it keeps downwards the total taxation rate. If both federal too province accuse 50%, amongst deductibility you lot continue 25% of your income (Federal takes 50%, province takes 50% of what's left, then you lot cause got 25%.) With hundreds of dissimilar taxes, it is possible to top 100%! However, I've been persuaded these incentives are to a greater extent than important. Moreover, if paying twice is such a problem, honey California, you lot tin brand federal taxation payments deductible from state income. I create non hear a groundswell for this solution.
Update
Influenza A virus subtype H5N1 few commenters (and yesteryear email) claim that California pays to a greater extent than to the federal regime than it gets back. The betoken is non the overall subsidy, the betoken is on the margin. Influenza A virus subtype H5N1 marginal $100 leads to a marginal $40 cross subsidy, no affair who pays who on average.
Also create non confuse margins too levels for people. The loss of SALT deductibility hurts a lot less on average than on the margin. Someone paying 13.3% marginal province taxation inward California alone pays that charge per unit of measurement on income over $1,000,000. So their total loss from the loss of SALT is non equivalent to paying federal taxes on the total 13.3%.
Update
The master copy post contained the next paragraph, which was wrong, then I took it out.
Update
Influenza A virus subtype H5N1 reader sent me links to ii wonderful resources, "real estate taxes paid yesteryear income bracket, too yesteryear state, available equally role of the IRS Statistics of Income:
California here: https://www.irs.gov/pub/irs-soi/15in05ca.xlsx (Lines 74-75)
All states too national summary here: https://www.irs.gov/pub/irs-soi/15in54cm.xlsx (Lines 75-76)
Individual province files too additional data: https://www.irs.gov/statistics/soi-tax-stats-historic-table-2
From the California analysis:
The row "real estate taxes, amount" too next addresses the enquiry I asked inward the spider web log -- to what extent is the evidently apartment belongings taxation genuinely progressive? It's non equally much equally I thought. The top ii categories pay 37% too 14% of existent estate taxes, though they bay 72% too 49% of income taxes. (The tabular array verifies the province numbers on how concentrated California's income taxation receipts are.) In retrospect, fifty-fifty overpriced existent estate is a normal skillful -- people don't pay larger fractions of their income on existent estate equally they larn to a greater extent than income -- then a apartment existent estate taxation volition heighten to a greater extent than coin from people amongst higher incomes, but non a higher fraction of income.
The tabular array is fascinating, too a clear mine for spider web log posts. One large lesson that sticks out to me (ok, confirmation of something I've been mulling for a while) is only how meaningless income is equally a social yardstick. Our policy discussions utter virtually "low income people" equally if that is a permanent caste distinction. Yet expect how many people amongst i thou m dollar incomes are taking unemployment compensation! In the side yesteryear side row, only who are people amongst nether $1 of income? You imagine homeless people roaming the streets of San Francisco. Well, of the 286,000 such people inward California 51,000 are s-corporation owners who lost money, collectively $5 billion.
Update 2
Morris Davis sends along the next information on belongings taxation / identify income.
Just how much are belongings taxes equally a fraction of income? It's interesting for a lot of reasons. For one, total taxes matter to the economy. Too many commenters create upwards one's hear that the top federal charge per unit of measurement of 42% (last year) is depression too nosotros ought to taxation people more. They forget province too local income taxes, sales taxes, excise taxes, corporate taxes, etc. etc. And belongings taxes.
Granted, we're veering off topic here, but hither is the table. New Jersey, where Morris lives, has the highest taxation rates. California is upwards there, but suggestion xiii too a lot of low-priced inland areas must starting fourth dimension ridiculous theatre prices inward the coastal areas.
Suppose you lot are inward the top, (roughly) 40% marginal federal taxation bracket. If you lot pay an extra $100 inward province taxes, you lot deduct $100 from income, too pay $40 less inward federal taxes. So, you lot genuinely alone pay $60 inward province taxes. The federal regime effectively transfers $40 to the province from taxpayers inward other states.
That's a large incentive to heighten coin equally deductible taxes from high-bracket taxation payers! This incentive doesn't operate if the province raises taxes from lower bracket taxpayers.
California's taxation system, for example, seems to response heartily to this incentive. California's income taxation charge per unit of measurement is highly progressive, topping out at 13.3%. As reported inward the Sacramento Bee
Nearly ninety pct of the coin [income taxation receipts] comes from one-fifth of the taxpayers – those making $91,000...Forty-five pct of the state’s income taxation coin comes from the top 1 pct of filers – those amongst adjusted gross income of at to the lowest degree $501,000.and, therefore, inward the highest Federal taxation bracket, too also probable to itemize deductions.
The province of California relies a lot on income taxes. The state of California gets 65% of its revenue from private income taxes, 22% from sales taxes, too 8% from corporate taxes.
The commons stories virtually California balance on its progressive, redistributionist politics, too at that spot is for certain much of that rhetoric around. But it also happens to live responding perfectly rationally to a strong incentive.
Conservatives cause got long objected to governments that pass other people's -- taxpayers' -- coin unwisely. But coin raised from taxpayers from other states, who create non vote inward your elections, provides doubly bad incentives.
This strikes me equally a strong economical declaration against deductibility of province too local taxes, that hasn't been made loudly enough. Of course of study no declaration (pro or con) based on incentives has been made loudly enough!
This strikes me equally theme of many things needing reform America. The New York Times report on astounding infrastructure costs rang a nerve. Most infrastructure is directed yesteryear province too local officials, who pass Federal money. Medicaid remains a matching fund -- the province spends a dollar, the federal regime chips inward a dollar. The movement to plow it inward to a block grant, which failed concluding summer, would cause got removed this incentive. Federal coin too province command is a mutual designing inward social programs, and John Cogan explains good the legal too institutional argue for this separation inward our history. But it leads to atrocious incentives.
Perhaps a full general reform lesson is that states should cause got to heighten the marginal dollar for anything from their ain voters.
PS. I was long for the deductibility of SALT on the grounds that it keeps downwards the total taxation rate. If both federal too province accuse 50%, amongst deductibility you lot continue 25% of your income (Federal takes 50%, province takes 50% of what's left, then you lot cause got 25%.) With hundreds of dissimilar taxes, it is possible to top 100%! However, I've been persuaded these incentives are to a greater extent than important. Moreover, if paying twice is such a problem, honey California, you lot tin brand federal taxation payments deductible from state income. I create non hear a groundswell for this solution.
Update
Influenza A virus subtype H5N1 few commenters (and yesteryear email) claim that California pays to a greater extent than to the federal regime than it gets back. The betoken is non the overall subsidy, the betoken is on the margin. Influenza A virus subtype H5N1 marginal $100 leads to a marginal $40 cross subsidy, no affair who pays who on average.
Also create non confuse margins too levels for people. The loss of SALT deductibility hurts a lot less on average than on the margin. Someone paying 13.3% marginal province taxation inward California alone pays that charge per unit of measurement on income over $1,000,000. So their total loss from the loss of SALT is non equivalent to paying federal taxes on the total 13.3%.
Update
The master copy post contained the next paragraph, which was wrong, then I took it out.
Property taxes inward California raise virtually $60 billion, roughly equal to the total raised from personal income taxes. Since the province is habitation to extremes of housing values, thank you lot to the world utilization too edifice restrictions, belongings taxes are also raised largely from people inward high taxation brackets, too thence benefiting from the twoscore cents on the dollar subsidy from the balance of the country. (This is a guess. If you lot know of information on belongings taxation yesteryear income brackets, I'd similar to run across it.)It occasioned the next updates too the next post which genuinely shows how incorrect it is.
Update
Influenza A virus subtype H5N1 reader sent me links to ii wonderful resources, "real estate taxes paid yesteryear income bracket, too yesteryear state, available equally role of the IRS Statistics of Income:
California here: https://www.irs.gov/pub/irs-soi/15in05ca.xlsx (Lines 74-75)
All states too national summary here: https://www.irs.gov/pub/irs-soi/15in54cm.xlsx (Lines 75-76)
Individual province files too additional data: https://www.irs.gov/statistics/soi-tax-stats-historic-table-2
From the California analysis:
The row "real estate taxes, amount" too next addresses the enquiry I asked inward the spider web log -- to what extent is the evidently apartment belongings taxation genuinely progressive? It's non equally much equally I thought. The top ii categories pay 37% too 14% of existent estate taxes, though they bay 72% too 49% of income taxes. (The tabular array verifies the province numbers on how concentrated California's income taxation receipts are.) In retrospect, fifty-fifty overpriced existent estate is a normal skillful -- people don't pay larger fractions of their income on existent estate equally they larn to a greater extent than income -- then a apartment existent estate taxation volition heighten to a greater extent than coin from people amongst higher incomes, but non a higher fraction of income.
The tabular array is fascinating, too a clear mine for spider web log posts. One large lesson that sticks out to me (ok, confirmation of something I've been mulling for a while) is only how meaningless income is equally a social yardstick. Our policy discussions utter virtually "low income people" equally if that is a permanent caste distinction. Yet expect how many people amongst i thou m dollar incomes are taking unemployment compensation! In the side yesteryear side row, only who are people amongst nether $1 of income? You imagine homeless people roaming the streets of San Francisco. Well, of the 286,000 such people inward California 51,000 are s-corporation owners who lost money, collectively $5 billion.
Update 2
Morris Davis sends along the next information on belongings taxation / identify income.
Just how much are belongings taxes equally a fraction of income? It's interesting for a lot of reasons. For one, total taxes matter to the economy. Too many commenters create upwards one's hear that the top federal charge per unit of measurement of 42% (last year) is depression too nosotros ought to taxation people more. They forget province too local income taxes, sales taxes, excise taxes, corporate taxes, etc. etc. And belongings taxes.
Granted, we're veering off topic here, but hither is the table. New Jersey, where Morris lives, has the highest taxation rates. California is upwards there, but suggestion xiii too a lot of low-priced inland areas must starting fourth dimension ridiculous theatre prices inward the coastal areas.
