Forcing Fairness in State Taxation


The article recommends amending the Internal Revenue Code to change to deduction for state and local income taxes to a credit up to some defined limit. This change will encourage states without an income tax to enact one at no cost to its taxpayers and will help these states and other states with a low income tax rate find a politically acceptable way to end the financial crisis in which many states find themselves. Recent recommendations of the Presidential Advisory Panel on Federal Tax Reform advocate eliminating the deduction for state and local taxes to finance elimination of other undesirable taxes, such as those on savings and investment. The report, while recommending such elimination, also made a recommendation regarding mortgage interest similar to what this author is recommending on state income taxes, namely, changing the deduction for mortgage interest to a credit. The panel should have recommended doing the same for state income taxes.


Taxation-Federal Income | Taxation-State and Local

Date of this Version

March 2006