Comment by darawk | Hacker News Reader

Comment by darawk | Hacker News Reader

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> Funny that it is the red states that tend to get more federal dollars returned/pumped into their states than they contribute. It's ridiculous to say the the blue states are stealing.

While I 100% agree that red states are the welfare queens of our current system, I don't think it's legitimate to consider that point in this context. The question we have to ask is what is the technocratically correct structure here. If states want to collect tax, that's great, but it shouldn't come at the cost of federal revenue.

> Republicans typically talking about being for smaller [Federal] government should like that the [blue] states are trying to solve the problems most important and local to them via their own means.

There is sort of a reasonable case to be made here, but I think it has major incentive problems. If states were using the revenue they raised to replace federal funds, you might be able to make this case. But as a systemic organizational matter, I don't think i'd want the system to work this way. It's just not a very clean architecture - states are incentivized to levy income taxes more than they otherwise would because it imposes a lower cost on their citizens than other forms of taxes, because of this federal revenue issue. I don't think you want an incentive structure like that.

Personally, I think the correct structure would be for states to tax their resident citizens in whatever way they see fit (property, income, sales, etc). And then Federal gov't taxes the states for a percentage of their tax revenue. That would eliminate the need for completely redundant state and Federal income tax collection systems.

So (for people in states with income taxes), instead of filing two separate tax returns and sending (say) 10% to your state and 30% to the Feds, you file one return sending 40% to your state and the Feds tax your state for 75% of their revenue (which happens to include 30% of your income).

Interesting but some states don't have an income tax. Maybe they'd need to build some infrastructure for it. Not insurmountable.

Not at all. Those states already collect their tax through other means (property, sales, etc). They would continue to do so. And the Feds would take a cut of that.

I completely agree.

Actually, I do like this incentive structure when put in this way. I think incentivizing people to take responsibility for themselves with only limited amounts of help from the federal government is the right thing to do.

That's not what this structure does, though. It just incentivizes states to collect more revenue than they otherwise would, at the expense of federal collection.

It is not a 1:1 ratio though as it really only lowers your taxable income. I agree that it should be limited but states should be incentivized to not need the federal government for much.

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