Charles Lane argued that the “least defensible special break in the U.S. tax code” is the deduction for state and local taxes. This position reflects a fundamental misunderstanding of the logic of the Internal Revenue Code (IRC). When a state imposes a tax on its citizens, that tax is a charge for the privilege of living and working in the state. It is not a personal expense — failure to pay the tax is a criminal act, punishable by imprisonment. The IRC simply acknowledges that, because the tax has been paid to the state, the funds are not available for taxation by the federal government. The charitable deduction and mortgage interest deduction are, to the contrary, inherently personal expenses, reflecting individual choices having nothing to do with any government payments or federal programs, and the rationale for allowing these deductions is highly suspect.
Mr. Lane also stated that the state tax deduction is a “significant federal tax subsidy for ‘blue’ state governments.” The beneficiary states mentioned are California, New York, Connecticut, New Jersey, Illinois, Massachusetts and Maryland. It is interesting that even after the state tax deduction, the citizens of each of these states (with the exception of Maryland) pay far more into federal coffers than their states receive back, effectively subsidizing virtually every “red” state. In effect, the IRC acts as a mechanism to shift revenues from liberal to “fiercely independent” conservative states.
Ken Wood, Derwood