Thinking Out Loud
Not too much going on as of late - thus, the lack of posting (aside from the inexplicable-but-for-my-hatred of law & order: criminal intent link to the d'onofrio story). Anyways, here's a story from last week that grabbed my attention. I haven't had enough time to think it through, but where better place than here to think out loud?
Here's a couple of quotes:
"Getting rid of a deduction that benefits high-tax states would be a way to pay for an overhaul of the tax code," said Stephen Moore, president of the Club for Growth, which advocates investment tax cuts as a way to spur economic growth.
William Beach, a scholar at the Heritage Foundation, a conservative think tank, agreed. "We have been subsidizing state taxes for a long time," he said, adding that it was poor tax policy because it rewards high-tax states while penalizing ones with low taxes.
So when I saw Bush/Rove may favor this approach, it made me chuckle. Bush wants to raise my taxes. Not as much as Kerry wanted to raise them, but he still wants to raise them. So much for the tax cuts. And what is this about "penalizing states?" The ability of the states to collect revenue is independent from those deductions one is allowed to take on a federal return (try deducting NY taxes from your NY return and see where that gets you).
I realize I am a bit out of step with tax policy, but it used to be that income taxes were based on one's ability to pay. And it strikes me that one's ability to pay is directly tied to how much tax one is paying on one's income. It's not as if the higher state income tax is somehow offset by the higher consumption taxes (not deductible) paid in the states without income tax. Tennessee's 9.25% sales/use tax without a wage income tax (amusingly, dividends and interest are taxed) surely is no more burdensome than New York's 8.25% sales/use tax plus 6% income tax. (Indeed, the Tax Foundation claims New Yorkers pay about 4% more of their income in state and local taxes than Tenneseeans.) The lowest wage earners wouldn't be affected of course, the state tax deduction would have to be more than the standard deduction ($4850 for next year for those of you planning ahead) for the increase to apply.
I suppose I just don't really see what interest any state really has in the federal taxes paid by its citizens. I do understand the desire to encourage investment (the fewer the restraints on investment, the fewer the restraints there are on the economy as a whole), but what is it that these organizations really want? To encourage investment only if the investor lives in a state with a more regressive tax system? To make the federal government blind to the ability to pay (not out of the question given the push for the replacement of the progressive income tax with a national consumption tax or a flat tax with a very low standard deduction)? I suspect that the different values placed on investment and wage income may be the single biggest fiscal difference between the parties right now. Both parties genuinely want people to be better off, but they've taken very different approaches to get there. One focuses on the expansion of the economy through as a whole through investment and any individual improvement as the outgrowth of that expansion. The other approach involves the use of certain restraints that will knowingly constrain that expansion to provide the means for the government to participate more directly in improving individuals' financial affairs. Neither approach seems to have worked perfectly though, so I suppose it's a fairly good thing that the country's still split enough to prevent one approach from completely dominating the other. How the approaches should be balanced is a subject for further thought...
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