High tax and low tax states (percentage, agent, deduction, expenses)

[cb2008]

I read this rationale stated many times in reference to the new tax plan which will no longer allow deduction of state and property taxes:
Low tax tax payers support those who live in states with higher taxes and property taxes. Therefore it is right that the deduction should not be allowed.

Can someone explain to me how this works?

As I see it, states with higher taxes also have higher wage earners than the states with lower taxes on average. So the high wage earners pay MORE in Federal taxes which go to support govt. spending in all states for things like Medicare, Infrastructure etc, national security etc. High tax states pay more to support these services via Fed taxes, whereas low state taxes, with higher unemployment and lower wages, pay less Fed taxes but gain the same benefit, and higher share of welfare, medicare, and medicaid payments.

Thoughts?

[StealthRabbit]

There is really nothing 'fair' about taxation, when it is administered by self serving politicians. States / vs, federal gets mixed results, ALWAYS benefiting the politicians (who ONLY care about getting re-elected to remain feeding at the pig trough) .

Example: Previous Tax ruling allowed residents of states without Income Tax to deduct local Sales Tax (which is usually HIGHER in states without a state income tax); New legislation sponsored by states with income taxes, allowed a federal deduction of state income taxes, but disallowed a State / local sales tax deduction. Real Estate / property / personal property taxes are likely high in states without income taxes.

Probably the only solution will be NO FEDERAL DEDUCTIONS (from state imposed taxes).

for 'non-state-related deductions';

I would favor a removal of the personal residence mortgage interest deduction, but that would put a lot of bankers and real estate agents out of business.

Contributions ? that is a +/-, as there is a lot of benefit to the Fed Gov for taxpayers to be funding Non- profits that bring a lot of savings / benefit to the Federal budget (Spending on disaster relief / homeless /health related / community funding of services for the disabled / elderly)..._ Unfortunately, foundations who support the failed USA public EDU system now capture much of the funding that used to be directed to a broader community need, than the donor's personal interest / value failed public school.

In my 'retirement quest for a low tax state...' I have found a huge mixed bag in taxation. For those who are flexible, there is a big advantage to change states with your current needs.
I.e.

• during wage earning yrs... NO INCOME tax state, (in an area with high wages (WA / AK))
• during your accumulation / purchasing yrs... a NO SALES tax state
• During retirement... LOW property Tax State
• At death ... No estate tax state

[Submariner]

Originally Posted by cb2008

... Can someone explain to me how this works?

As I see it, states with higher taxes also have higher wage earners than the states with lower taxes on average. So the high wage earners pay MORE in Federal taxes which go to support govt. spending in all states for things like Medicare, Infrastructure etc, national security etc. High tax states pay more to support these services via Fed taxes, whereas low state taxes, with higher unemployment and lower wages, pay less Fed taxes but gain the same benefit, and higher share of welfare, medicare, and medicaid payments.

Thoughts?

Coming from my career field I have had a few job offers. The better pay was in locales with much higher COL/taxes. It was not what we wanted our lives to be.

My observations I agree with your observations.

High wages are in regions with high COL/taxes. They go together hand-in-hand.

Likewise, low wage regions also have low COL/taxes.

Where we settled after I retired is a perfect example of that. I have a small pension, so I needed to migrate to a low COL area. We have been here 12 years and we love it

[ohio_peasant]

For an alternative view, the main public expense at the local-level is schooling for children, and it take approximately the same everywhere to educate kids. So, in poorer states with lower median incomes, tax rates have to be higher, to raise the same revenue, as in states with higher median incomes. Worse yet, it is entirely likely that higher income people have smaller families, for a bevy of sociological reasons. So, in higher-income areas, there is not only more income available to be taxed (enabling rates to be lower), but also fewer expenses to be covered by said taxes - so rates can be lower still.

While the above is admittedly speculative, it does seem to me, that COL overall is orthogonal to tax rates. COL is more about housing prices than about taxes. By way of example, housing prices in my part of Ohio are laughably low, and while taxes aren't exorbitant, they're fairly high; considerably higher, for example, than in neighboring Indiana. Another example is Washington State, which at least along its coast is quite high-COL, yet its state income tax is zero.

Also of note, is that for persons whose income is primarily from investments, the federal rate is likely at only 15%. But most states make no distinction between earned and unearned income. So, if say the state income tax rate is 6%, but the federal marginal rate is 28% - well, the state portion isn't hugely important. But if the state rate remains at 6%, while one's federal rate falls to 15%, say because one has retired and now relies mainly on investment income, well, now state-to-state variations are pretty important.

[cdelena]

State taxes vary greatly but one thing to keep in mind is that once an income tax is established it is much much easier to get changes to rates and regulations. The thing you can anticipate is that government bureaucracies will take on control not clearly in the best interests of the public, and there will be taxes to fund them.

[17thAndK]

Taxes tend to vary in proportion to levels of services provided.

[JimRom]

So you want to debate the fairness of income tax rates in a country that was never intended to have an income tax?

Income tax is simply a name for government theft.

[Pooks1976]

First I think both arguments are pointless. Second I think they are talking about 2 different things.

One group is talking about the state level. High income states like NY give more to the federal government, than they get back. Thus NY is subsidizing low income states, because they have a concentration of high earners.

The other group is talking about the individual level. If 2 people make the same salary and the person in the income tax state can itemize, then the person in the income tax state will send less to the federal government than the person in the non income tax state. No income states are sending a higher percentage of the same income to the federal government (if the state income tax person can itemize).

This whole plan seems to be negative for people who currently itemize, but aren't subject to the AMT.

[17thAndK]

Originally Posted by JimRom

So you want to debate the fairness of income tax rates in a country that was never intended to have an income tax? Income tax is simply a name for government theft.

Common thought among "sovereign citizen" types.

[CrazyDonkey]

Originally Posted by Pooks1976

One group is talking about the state level. High income states like NY give more to the federal government, than they get back. Thus NY is subsidizing low income states, because they have a concentration of high earners.

NY and other high-income "blue" states, which are subsidizing low-income "red" states with lots of poor people and low-income workers.

https://www.washingtonpost.com/news/...-the-tax-code/

What this is about is punishing people living in high-income states that have opposed Trump. His proposals will balloon the deficit and stuff the pockets of the rich. The higher standard deduction and EITC will only marginally help the poor to live in poverty, but the higher low rate will make it harder for them to crawl out of poverty. This is a plan only a "moron", or a total hypocrite, would come up with.