Bush Plan Could Imperil Tax Write-Off for New York,” by Ian Urbina, New York Times,, 27 December 2004 (from Democratic Underground).

A dish, best served cold.

As the Bush administration looks to revamp the tax code, New York officials say they are particularly worried about one idea being considered: eliminating the federal deduction for state and local taxes.

If the president pursues this plan, New York State would lose about $37 billion per year in federal tax deductions, more than almost any other state, according to Internal Revenue Service data. The change would affect about 3.2 million households in New York, three-quarters of which are middle- and low-income, tax records indicate.

This change would be one of the worst things for New York to came out of Washington in a long time,” said Senator Charles E. Schumer. “But if they take this route they can expect a serious fight.”

But there’s more to this than financially punishing blue-staters.

Weirdly, the U.S. tax system encourages states to adopt income tax, by making money individuals pay to states in income taxes deductable from their national income tax debt. Why the government would wish to depress the marginal willingness to work of Americans is a question best left behind in the dark FDR error. Happily, the Bush administration is looking to modernize this. President Bush is promising to push a simpler, pro-growth tax code, and removing the income tax deduction would be a great first step.

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