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home : opinion : opinion November 22, 2017

11/15/2017 12:11:00 AM
Does The Federal Tax Code Favor Some States Over Others?

Recently I have heard arguments from both Republicans and Democrats that some of the proposed Federal tax code changes will punish the people in their states. They have this entirely wrong and should be saying that the changes would no longer favor the higher income people in their states. All the renters and those not living in above state average cost houses will not benefit from property tax and mortgage interest deductions especially if the standard deduction is doubled.

They use the term "donor" state to justify being against leveling the playing field. Rather a state is a "donor" state should have nothing to do with the Federal tax code. All States were originally set up to be "donor" states as they all contributed to paying for a small centralized Federal Government. By having all the states contribute to the federal budget representatives from all states had an interest in keeping the cost of the new Federal government low. We have long since strayed from this original model and have as a result a huge Federal government.



Wendy Peeler - Hickory Christmas

All states should be donor states as it makes no sense to collect money from a state and then send it all back to the same state. If it did there would be no reason to collect it from the states in the first place. As all Federal programs have a cost to them the only way to send more back to the states is to spend more than is brought in and run a deficit. The problem is not that some states are donor states, the problem is that some states are welfare states. The irony is that the representatives from these high cost states typically support more federal spending.

I agree that high cost of living states tend to pay more federal income taxes as the higher cost of living requires higher wages and we have a progressive tax structure that taxes higher wagers at a higher percentage. If they were arguing that each state should contribute the same dollar amount per person, I could partly agree with the logic. But even that logic is slightly flawed as the Federal employees in the high cost states also get paid more and the buildings cost more etc. In addition, California may be a donor state this year but if a major disaster strikes they will quickly get back more than they have been donating.

The easy way to be fair to all states is to have simple tax system that favors no states and then limit the Federal spending in each state to 20% less than what they pay into the federal government. The 20% is just an estimate, the actual amount needs to account for what we spend outside the USA in wars, military bases, foreign aid, the UN, interest on the debt etc.. Some would still complain as a large Naval base such as San Diego would consume a large portion of California's share. What this means is that other Federal spending on research, district courts etc.. would have to be in other states. This may even help to lower the high cost of living in California as there would be less demand for buildings, land and employees. States may start to argue in favor of closing an unneeded military base in their state to free up federal money for a research center or VA hospital instead of always fighting to keep every base open no matter what. This would also help reduce wasteful pork barrel spending as each wasteful project in their state would take away money from better projects in that state at not take from a endless money supply.

Mark Byrne
Libertarian Party of Catawba County



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