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I don't see why state taxes should be federally deductible to begin with.

Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes.

If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions.

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> Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes.

New York gets about $0.80 for every $1 of taxes paid. Texas gets about $1.50. [1]

[1] https://www.theatlantic.com/business/archive/2014/05/which-s...

Both states still recieve the same benefits from the federal government, it's mostly just demographic and economic differences that cause different states to receive different amounts of aid. Or do you really think West Virginians, who are mostly poor, should receive exactly the amount as New York, who is much more rich overall?

> Both states still recieve the same benefits from the federal government, it's mostly just demographic and economic differences that cause different states to receive different amounts of aid. Or do you really think West Virginians, who are mostly poor, should receive exactly the amount as New York, who is much more rich overall?

That isn't correct. Pork spending and state-targeted spending to bribe lawmakers has been a traditional political activity since the founding of the US.

You think it's just an accident that the rich states are high tax? No, the rich states have done much more to invest in education, safety nets, and regulation (work place safety, environment, police activity, etc.). That is why they have better economies. This tax bill just takes a look at all that investment and says: nope.

What's worse is that it actively sabotages responsible governance so rural and red state voters can get their revenge for being left behind.

That is why they have better economies.

That's a bit of a stretch, no? The EU has higher tax rates than the US coastal states and their economies generally lag the US.

And Texas has been one of the fastest growing states in the US, yet has some of the lowest taxes.

Should I go on?

> You think it's just an accident that the rich states are high tax? No, the rich states have done much more to invest in education, safety nets, and regulation (work place safety, environment, police activity, etc.). That is why they have better economies. This tax bill just takes a look at all that investment and says: nope.

This right here is the issue: removing the SALT deduction discourages public investment that is a net win before considering the distorting effect of federal taxation, while preserving the deduction means that federal taxes don't have a distorting effect. I've written up a very simplified scenario illustrating this:

https://news.ycombinator.com/item?id=15855955

OP is talking about comparing families specifically. This talking point doesn't mean anything on the level of a single taxpayer.

You could argue that the family in Texas is getting more services for their tax dollar. But, that is almost certainly false, because people who actually make enough to pay taxes don't tend to consume the kind of services that cost tons of money (aka. social services).

> Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes.

This assertion isn't true. Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart.

https://taxfoundation.org/federal-taxes-paid-vs-federal-spen...

5 of 24 years (1981-2005) CA has received less. And if you look up the scattering (but less concentrated) stats from 2005-2017, CA has been getting less than 80% of its money back from the Federal government. So its really 31 of the past 36 years that CA has been drained to help red states.

https://taxfoundation.org/states-rely-most-federal-aid/

> If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions.

That is a strawman.

Progressive taxation has nothing to do with aggregate wealth and everything to do with individual wealth.

>Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart.

Much of that funding goes to subsidies (farming, energy, etc) for which the whole country enjoys the benefits, if not proportionally. A state like SC that has a disproportionate amount of military bases is going to receive far more per capita government funds, though the local SC taxpayers only get marginally more benefit than the rest of the country.

That's not to say you are wrong that rural states get better de facto tax treatment than urban-focused states but it's a bit more intertwined than it sounds.

> local SC taxpayers only get marginally more benefit than the rest of the country.

I wouldn't agree its marginally more benefit. Those bases being shut down would crush SC's economy within 50 miles of every base.

Economically, they enjoy 100% of the benefit and pay less than 5% of the costs.

The US is not, in any real sense, threatened militarily that I benefit from a large defense budget. Similar is true of food and energy subsidies. They have strategic value but they don't benefit me economically. There is a reason food and energy imports are still competitive despite the subsidies.

The benefits of what you mention is it helps broaden the US's foreign policy options, not actual economic value to the average American.

And we haven't even discussed defense spending from an efficiency/ROI perspective.

Two questions:

----

1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not?

----

2. How do you feel about the mortgage interest deduction? A very similar question could be asked.

Two families both make $250,000 a year. One took out a $750k mortgage and one took out a $300k mortgage. Why should the second family carry more of federal tax burden than the first?

I don't have the right answer, but it's something to consider.

Two separate issues -- State and Local Taxes (SALT) are income, property and other taxes collected at the non-federal level. They have been deductible since the creation of the federal income tax. In part, because the federal government recognizes that resources are more efficiently allocated locally. And that is one reason why higher taxed states pay more into the federal government's budget than they receive in benefits. [1]

The Mortgage Interest Deduction is simply a wealth transfer from people who don't own homes to people who do own homes.

[1] https://www.theatlantic.com/business/archive/2014/05/which-s...

The mortgage interest deduction is a way for home owner/occupants to get cost parity vs landlords who could own the exact same property at a lower cost because the interest of a loan is a business expense.

Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms.

> Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms.

Morw to the point, normal homeowners who have trouble with the setup cost of such an arrangement would pay higher taxes to subsidize the rich, who do not have trouble with the cost of setting up such a tax avoidance scheme.

> They have been deductible since the creation of the federal income tax. In part, because the federal government recognizes that resources are more efficiently allocated locally.

Perhaps more to the point, not deducting them mathematically creates structural incentives for inefficient local decisions.

Because they are vastly wealthier to afford a house that costs ~3x the median?

How do you know that the second family is vastly wealthier?

Either way, if you want to tax wealthy people then you can introduce a wealth tax.

You got it mixed around. Income is equal for both parties, but the family in the 300k house pays more in taxes because they deducted less interest from their income.

I assume this was a typo, but to clarify the family with the $300k mortgage pays more in taxes.

Gah, I had a typo while explaining a mistaken interpretation. Thanks for point that out!

The right answer is to get rid of the deduction. It's regressive (as you point out) and reflected in the costs of housing anyway (people choose the monthly payment they can afford not the house they can afford).

> people choose the monthly payment they can afford not the house they can afford

It's the same thing - the house you can afford is one for which you can afford monthly payments. Unless you buy cash, which on the average almost nobody does for low-mid-range market.

My phrasing is in-artful. The point is buyers make a decision about what payment to make and the seller gets the benefit of the tax credit.

You're missing one even more heinous point, renters. A family paying off their 300k mortgage is getting a decrease in taxes owed while being subsidized for paying into an asset. The renting family is not being subsidized and they will never again see the money they are spending on rent. In most areas this is particularly twisted as mortgages will run beneath rental costs for the same standard of living. So the only real difference is that renters don't have to deal with the costs of damage to their asset... no money out of pocket for repainting or replacing appliances or structural issues and if their building slides into the sea they aren't out the value of the property.

Often times this also gets a bonus racist angle since minorities have a harder time securing a mortgage which traps them into overpaying for housing while struggling to save to pay less for their housing.

> The renting family is not being subsidized

Guess what happens to rent if cost of ownership rises due to interest not being deductible?

My guess is housing prices fall and rents follow?

Nope, at least not in the short term. In the short term, house price is locked for the current owner, and usually by their payments to the mortgage holder. If the expenses rise, so do the prices. And since this will happen on the whole market, the price rise would not be substantially constrained by the competition.

On the long term, this could depress the housing market and thus lead to lower prices. That would depend on the overall market state - in markets with housing shortage that probably won't happen anyway.

If the expenses rise, so do the prices.

Not sure I understand. If expenses rise, housing prices fall, not increase.

And yes, a landlord might say "my expenses went up so rent will go up as well". However, the market sets prices, not landlords. He might raise the price, the tenant leaves and his place sits empty.

There are plenty of people out there losing money as landlords because their rents are higher than what people will pay.

> 1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not?

There's no objective reason why it should be. But since deductions are largely arbitrary policy instruments anyway - because property tax deduction encourages and makes easier home ownership (at least this is the theory) and the government wants more home ownership. State tax deduction does not really have such goal (unless you see moving people to high-tax states as a goal, but I don't think federal government identifies such goal).

> 2. How do you feel about the mortgage interest deduction? A very similar question could be asked.

Same as above. Only much bigger - given 20% down mortgages, mortgage interest - especially for new mortgages on standard equal-payment plan - is very substantial. So, tax deduction makes owning home easier - and, on the reverse, removing this deduction would seriously hurt current mortgage owners and discourage new ones.

The difference here is that with property-related taxes there is a policy goal linked to it, and also long-term choice individuals make based on this policy, which would make them very upset if the policy changes. With state taxes, there's no real policy goal (for federal government at least) and most people don't choose state to live it because of state tax deduction.

> The difference here is that with property-related taxes there is a policy goal linked to it, and also long-term choice individuals make based on this policy, which would make them very upset if the policy changes.

Wouldn't you agree that choosing to live in particular state is just as much of a long term decision as choosing to live in a particular house?

Yes, but how much state tax deduction figures in that choice? I wouldn't say it's a lot. Presence and absence of state income tax - maybe, but presence of deduction - not very likely. And of course, if the state wanted to compete on that metric, they could easily lower the taxes, but I haven't seen many high-tax ones to be willing to.

Of course it's a significant factor. You're talking about a pretty large portion of a household's budget.

> State tax deduction does not really have such goal

State tax deduction has an even better goal: avoiding discouraging tax and spending decisions that pay for themselves and provide additional returns before considering federal tax distortions.

You can make the same argument about every single deduction. Texas family makes large donations to Christian churches. Why does a secular family in blue state subsidize that deduction ? Texas has higher property taxes ? Why does a California family with low property taxes subsidize that ? Texas did not expand Medicaid. Which means an average citizen can have higher medical spending ? Why does another state with expanded Medicaid subsidize that deduction ? I can keep going on the myriad of all other deductions. Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction.

Tax payments which directly fund public schools (SALT) are no longer deductible but they added the ability for private school tuition to be deductible. This is going to have dire consequences for America's public school system.

>You can make the same argument about every single deduction.

And there's a good reason to eliminate most deductions. A lot of deductions complicate the tax code, and many likely exist to create loopholes by which people can avoid taxes.

The purpose of a deduction usually is to promote a certain type of activity (buying homes, giving in charity).

>Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction.

While it may be politically motivated, I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable. So it's a bit of both.

> I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable.

The GOP house Ways and Means head is from Texas which is a red state, relies heavily on property taxes and has no income tax.

Coincidence? I think not.

You have a very wrong assumption there. Those blue states were already paying more in federal taxes than they were taking in spending. Families in red states already carried less federal tax burden...

This is all a crazy moot discussion anyway, because it's not even a balanced cut - its a cut that put the whole nation into a huge deficit while increasing taxes on labor-based incomes. So some already very wealthy capital owners are getting a very massive transfer.

Taxes aren't based on how much you benefit from government. Progressive tax rates make sense because the wealthy can afford to pay a larger share of their paycheck to support shared society. Not because they necessarily derive more benefits than the middle class.

If we taxed people based on the benefits they receive from the government, then the homeless would pay a fortune.

> If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune.

This is a comical simplification. The public and legal infrastructure in America overwhelmingly helps companies and investors make money. Where would UPS be without public roads? Where would Warren Buffet be without a stable legal framework for investment? That's not to mention the military spending that secures all of these fortunes against foreign aggression.

To claim that the poor disproportionately benefit from government spending is missing the forest for the trees.

I think I phrased that poorly. My point is that how much the government spends "on you" is not relevant to what your income tax rate should be.

> If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune.

This is provably and patently false. Homeless people don't have their good protected by the police, don't get fire protection, don't drive, don't get deductions for businesses, don't get inheritance from their wealthy, millionaire parents, don't get lobbying influence. The entire system is set up to the benefit the rich with a few social stability benefits for the poor, which in turn keep them from uprising and storming the gates of the wealthy.

My point was that we are not taxed based on the benefits we consume (if we were they'd be fees not income taxes). I did not mean to imply the homeless have it easy.

I'm sorry I must not have been clear. My point wasn't that you were saying the homeless had it easy, my point was that the homeless cannot use the system because the benefits of the system belong to those who already have money.

I like the other replies, but I'd like to add something that I haven't seen discussed much. The median income in New York and California is probably much higher compared to any random flyover red state. Your average household in NY and CA is going to be at a higher marginal tax rate than say Nebraska. I haven't done the math, but I'd suspect the deduction flattens this difference to some extent.

I don't see why state taxes wouldn't be federally deductible.

Roughly: if I work 6 hours, I have to work an additional hour a day just to earn money to give to the state; you're suggesting I should work an additional 15 minutes to earn money to give to the feds just because I earned the money to give to the state.

Absolutely I shouldn't be paying taxes on money earned just to pay taxes. It's not like I'm "shielding my earnings", because those earnings are earned specifically to get confiscated - you want me to earn more just because someone else took my money.

With the same logic, every expense should be deducted. If I work additional hour to give money to the landlord/clothes store/pub owner, why should I work additional 15 minutes to give money to the feds just because I earned money to give to the landlord/clothes store/pub owner? Because tax is charged on the income, not on money left in your pocket after paying everybody else. That's why it is income tax, not wealth tax or savings tax or any other tax.

Taxes are fundamentally different from other expenses. I'm not opting to purchase a service (or not, just saving the money) when paying taxes, I'm facing the implication of a gun to my head (the ultimate enforcement of government power). No other expense comes directly from simply how much I earn, and is not compulsory based thereon. If there's going to be deductions at all, the first should be taxes paid to other levels of gov't.

I do not see how compulsory nature of the expense matters in this particular case. You need to eat to live - should food expenses be deducted? What if you're sick and need to pay for medicine - should that be deducted? You need to be clothed to go on the street - should clothing expenses be deducted? You can find argument for many of those, but ultimately the decision is arbitrary based on preferred policy by state. If the state police would favor improving the clothing situation of the population - you may very well get clothes deduction. Depending on what the government wants to promote or suppress, you may get various policy deductions.

> You need to eat to live - should food expenses be deducted?

Reasonably necessary ones should be, or a value to cover them rolled into blanket deduction everyone gets, sure.

> You need to eat to live - should food expenses be deducted?

That's why there is a medical costs deduction. (It only cuts in at costs above 10% of AGI, which is a bit wonky, though.)

> You need to be clothed to go on the street - should clothing expenses be deducted?

Same answer as for food.

Income earned for mundane food/clothing/shelter/healthcare costs SHOULD be deductible. That's basically what the poverty line is: the minimum income necessary for basic sustenance in national standard culture. If you're functioning at that level, you shouldn't pay taxes - precisely because you can barely care for yourself & your own, so you shouldn't be compelled to pay for others (with a bureaucracy siphoning off a significant percentage for themselves). Insofar as sales taxes are a thing, all documentable taxes paid should be refunded if your income is below the poverty line[1], and even those above that line should be able to deduct "mundane sustenance" costs including taxes paid.

[1] - exactly how the transition from "below poverty line" to "above" should be handled, to mitigate the tax cost transition, will require a bit more thought than this casual comment. Suffice to say we pay representatives to sanely figure out such things.

> Income earned for mundane food/clothing/shelter/healthcare costs SHOULD be deductible

That gets into a rabbit hole pretty quickly. What's mundane? Am I allowed to shop in Whole Foods or only eat at McDonalds? What if I care about my health - should I be penalized by taxes for wanting to eat heathy (and therefore more expensive) food? What if I don't eat a lot but I must buy very expensive clothes because of peculiar set of allergies? Managing all those would make each tax return like a PhD thesis and make handling 300M of those infeasible.

> If you're functioning at that level, you shouldn't pay taxes

That is what is happening for low income people in US right now. Lowest quintile pays virtually no federal income tax.

> , all documentable taxes paid should be refunded if your income is below the poverty line

Since it's impossible to prove who bought certain thing, this would be huge motivation for abuse. Do you want to pay 10% sales tax on $100K car or pay a poor person $500 and have them "buy" that car, get the tax refunded and save $10K? Of course, you say, there are title records. For cars. Which need now to be checked (welcome another thousand of government employees, with their salaries, pensions, etc.). And how many expensive things don't even have formal ownership registration? These things get very complex and expensive to handle very quick.

> That's basically what the poverty line is

Poverty line is usually defined as percentage of median income. This is largely arbitrary and handwavy, and used because people need to use something. But it's a flimsy base for the tax policy.

> exactly how the transition from "below poverty line" to "above" should be handled,

This is called "poverty trap". It's a well-known phenomenon, especially in a welfare state.

> Suffice to say we pay representatives to sanely figure out such things.

We do pay them, and pay them very well, but their delivery on the "sane" part is very short of the desired, so far.

> Poverty line is usually defined as percentage of median income.

Not in the US. The main US measure is based on three times the cost established for a ”minimun food diet” in 1963, adjusted by the standard inflation measure (CPI-U) since then.

> With the same logic, every expense should be deducted.

That's essentially how business taxes work, so why not?

Why income tax is not "free cash" tax? I guess because it's massively easier to tax income than "free cash" and more exceptions you allow more avoidance you get. Most countries don't even have this system of deductions US has - there's just income tax, which usually is paid automatically by wage deduction, and some kind of sales/VAT tax for businesses, and very little opportunity to deduct any personal expenses. US uses deductions as policy tools, so they need a lot of it. But that's in no way the only way possible.

Howdy, I'm a progressive!

This is actually the one portion of the tax cut that I'd like to see retained... but I am really struggling as to why they wanted to remove the SALT exemption except to punish blue states. The party of states rights just removed the ability for individual states to try and innovate on budgetary matters and optimize spending into certain sectors of their economy they find particularly relevant - repealing this is a federalist policy which doesn't really meld with their messaging.

> I don't see why state taxes should be federally deductible to begin with.

The same reason legitimate business expenses (including, of course, state and local taxes paid by businesses, which are not affected by this reform) should be and are, and the same reason lots of personal expenses (some of which are, some of which are not currently) should be: expenses which are essential prerequisites to or consequence of earning income should be netted against income before taxing it.

My state and local income, property, and sales tax are the support payments for the physical and social infrastructure that allows me to earn the income I do. With the federal deduction (and assuming state taxes with a marginal rate below unity), it's in my interest to engage politically to optimize for my net return before federal taxes; without the federal deduction, it becomes worthwhile to sacrifice income (before and after) state taxes for lower state taxes, so long as the reduced federal tax cost of the lower pre-state-tax income is enough to offset the reduced net-of-state-tax-but-before-federal-tax income.

This encourages producing less market value when the net after state taxes is equal, encouraging economic contraction.

For illustration, suppose, for simplicity, a federal flat marginal tax rate of 30% percent, and the ability to make $100K with a state tax rate of 10% or $94K with a state tax rate of 5%, and no other deductions.

Ignoring federal tax, the optimum choice is to choose the $100K income with the 10% tax: it provides an $90K net (of state taxes) income, compared to $89.3K in the lower-base-pay regime.

If you deduct state taxes from federal taxes, the incentives are unchanged, the net becomes $63K vs. $62.51 with the high-income, high-tax choice providing the higher net income.

But if you don't deduct the state taxes, the incentives are flipped: producing less market value even after the cost of local infrastructure becomes preferable, with the net being $60K vs. $61.10K.

Supporters of this proposal say it punishes people in high-tax states for bad political decisions; but the math is that it punishes them for good political decisions—for choosing increased taxes when the increase in market value produced that those taxes enable is greater than the value of the taxes.

Yes, liberals love high taxes when it hits someone but themselves. No one likes paying taxes.

I don’t mind paying higher taxes if society as a whole benefits. The good people of California vote for taxe increases all the time for things like better schools or improved infrastructure.

If my taxes were going up to pay for something like single payer, I wouldn’t complain for one minute. However, in this instance, my taxes are going up to increase Ivanka Trump’s inheritance when that stuttering idiot father of hers dies. That’s some bullshit.

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