Why The State Income Tax Deduction Is So Important

One Republican talking point on the GOP tax bill that sounds very common sense but is quite nefarious is the elimination state income tax deductions.

Currently, if you itemize taxes, you can deduct your state income tax from your federal taxes. According to Pat Toomey, this is unfair, and I’ll spell out why he thinks that.

As he puts it, if one neighborhood pays for a lot of government services (like trash removal) they get all of those services, but on top of that, then they get to deduct those taxes from their federal taxes. Meanwhile, another neighborhood provides no government services, so they have to pay for those services privately, but they don’t get to deduct the private costs of doing so.

He’s right. It is imbalanced. That unfairness is a good thing. It is an incentive for government to provide services. States and local municipalities can raise taxes for local spending, knowing that it won’t hurt their residents as much, because of that deduction.

That allows states and local communities to provide public services to people who couldn’t otherwise afford them.

Certain services, by their nature, end up being more expensive to provide privately than they are publicly. Why? Because those services are things that are more efficient for *society* when provided publicly, but more efficient for *wealthy individuals* when provided privately just for themselves.

Schools are a perfect example. Currently, everybody pays taxes for public schools, so that every child can have a school to go to. Wealthy people opt out of those systems and buy into premium versions of them (like private schools). If we allowed wealthy people to opt out of the taxes for those systems, we will see public schools become even worse, making quality schooling even less available to poor people.

Is that imbalanced against people who send their kids to private schools and yet still have to pay for public schools through taxes? Yes, it is. And that imbalance is a good thing because it allows *society* to reap benefits that *individuals* might not otherwise be willing to seek.

What removing state income tax deductions does is make it harder for state and local municipalities to provide public services. Combine this with attacks on the ACA and a rejection of single payer, what Republican policy is saying is this.

Republicans refuse to allow for public services such as the Affordable Care Act (let alone single payer healthcare) to be paid for at a national level. But that is not enough. They also are going to make it more difficult for people to try and provide those services on a state level. Why?

Because that way wealthy people can contract the premium version of those services for themselves, not have to pay taxes, and not contribute to the basic version of those services for everybody else.

Big cities and blue states are moving in the right direction on the climate, on healthcare, on the minimum wage, on a whole host of issues. Slowly, and often poorly, but still in the right direction.

This is a direct affront to those goals, and it is an attack on the very idea of public services.