Empirically Profligate

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

When Department of Taxation and Finance forms begin to arrive in the mail a few weeks from now, New York residents will get a stark reminder that tax season has begun. New Yorkers need this kind of reminder: From Buffalo to Manhattan and everywhere in between, Empire State residents pay too much in taxes.


New York state taxes, in fact, are the second highest of any state in the Union. When accountants add up federal and state taxes, the government takes nearly one out of every three dollars that New Yorkers earn. On average, Americans pay 29% of their income in taxes. In my home state of Tennessee, the bill comes in at about a quarter of all income.


New York State’s problem isn’t state management or political leadership. While nearly everyone agrees that New York’s fiscal management could still stand for some changes, Governing magazine’s management report card gives the state higher marks than it earned in the 1990s. Governor Pataki has cut taxes almost every year he’s been in office.


Instead, New York’s sorry tax situation has a lot to do with an odd and defective federal policy. Since the modern income tax began in 1913, tax laws have allowed individuals to deduct some types of state and local taxes from their federal tax liability. New York’s state taxes, although lower than they were 10 years ago, still remain higher than average largely because of past administrations’ massive spending binges. Because individuals in high-tax states get the largest benefit from state tax deductibility, New York governors from both parties felt free to raise taxes through the roof to pay for pet programs.


If New Yorkers hope to avoid a return to profligate spending and stratospheric tax rates, the best policy would be to eliminate all federal deductibility of state taxes. Under the current tax system, residents of low-tax states make relatively higher federal tax payments and thus subsidize those who live in states with higher taxes. Fiscally prudent states, in other words, get cheated.


But financially stretched residents of high tax states should also support eliminating local tax deductions. Over time, doing away with such deductions drives taxes lower for everyone. In Canada, where citizens can’t deduct local taxes from federal returns, providences compete vigorously to offer the lowest taxes. In Ontario, small businesses have seen their tax rate fall from nearly 9.5% to 4% over the past 10 years, a drop of nearly 60%.


Of course, some localities may find higher taxes beneficial. If a state’s people believe that they will benefit from larger-than-average spending on education, health care, infrastructure, or anything else, then they can choose higher taxes. But, when a state’s people call for new government spending, they should have to pay the bills themselves and hold their own local government accountable if it fails to deliver.


No number of federal tax cuts, after all, will make a difference to Americans’ pocketbooks if state taxes rise. The federal government quite simply should not subsidize profligate state and local government anywhere in the country. When the Senate next takes up tax reform, I’m going to work for a fair, simple, pro-investment tax code that eliminates the deductibility of state taxes.



Dr. Frist, of Tennessee, is the majority leader of the Senate.


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