Here’s a letter that I wrote to the Washington Post that didn’t
get published:
In “The deduction to chop,” Charles
Lane’s column on November 20, he raises an interesting point. Allowing deduction of State income taxes on
Federal returns clearly favors residents of States that impose income taxes;
and the higher the rate, the more advantageous is the deduction. In general, it seems to be the blue states
that get most of the benefits of this deduction. He might have written a balanced column
instead of a conservative puff piece, if he had also mentioned that the return of
Federal taxes to the states greatly favors the red states, i.e., blue state
residents tend to get a per capita return of Federal taxes in the form of
grants and expenditures that is less than 100% on the dollar while red states
tend to get more than 100%. New York,
California et al, are supporting the red states. Maybe it all comes out in the wash, but, if
so, then in terms of equity the state income tax deduction is “the deduction
not to chop” until the whole framework of public expenditures is overhauled in
a major tax reform that recognizes needs at all levels of government.
It’s not a very exciting letter, but I had to write it,
because I don’t think anyone should be discussing “public finance,” who doesn’t
have a thorough understanding of this field of economic theory. A good
place to start learning would be the Wikipedia entry below.
I didn’t read very far, but the first few paragraphs seemed
promising.
Even Milton Friedman could admit some role for government. The example I remember, probably from Capitalism and Freedom, is lighthouses. We have to have them, but there is (or was)
no practicable way to collect user fees, so the public has to provide them. What
Grover Norquist, the Tea Party and too many people on Capitol Hill and in
voting booths don’t seem to understand is that our world has gotten
increasingly complex as we continue to urbanize and develop new technologies. Now it’s not just lighthouses but also airports
and air control systems and interstate highways and on and on in every area of
human activity. The most obvious one is
healthcare. It used to be, if you called
the doctor, he came and did what he could, which wasn’t much, and if you couldn’t
pay, he probably let it go, because it wasn’t much, and most people could and
did pay, or they didn't call the doctor and got well on their own, or not. Now, if we have developed life
saving technologies, can we deny them to those who cannot pay for them? If we can, I don’t want to live in that
society. The percent of GNP that is
collected in taxes and spent on public goods can only increase over time. The only alternative is to deny to a
substantial portion of our population the fruits of economic and scientific development.
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