Because you don't actually have that money.

Suppose that the state and the federal government each had a 55% tax rate. Then you would make $1 and owe $1.10. You would owe more in taxes than you make, so you would quit your job.

Of course, there is a simple way for the states to fix this -- move the taxes to the business side. Instead of having state income tax, have payroll tax paid by the employer. Then the employer can still deduct them from its federal taxes. This also improves eligibility for people in your state for various need-based federal programs, because nominal wages will be lower by the amount of the tax when determining eligibility for federal assistance. And it gives everyone a de facto raise until wages adjust to the shifted tax burden.

If both the state and federal governments each had a 55% tax rate, you'd be justified in questioning the rates and voting for a different government! Just as I expect people would complain if there was just a single tax authority, but it set a rate of 110%.

Assume for now that we accept the federal government is entitled to raise money for its programs by taxing people's incomes (yes, some people might disagree, but that's a different discussion). Why should a state be allowed to reduce the federal government's take, and therefore shift the burden of paying for federal services to other states, by choosing to increase its own local tax?

At the end of the day I think it matters because high tax states have already been subsidizing red states and one of the pressure release valves was that they weren’t taxed twice on the same income. I.e:

https://www.apnews.com/2f83c72de1bd440d92cdbc0d3b6bc08c

So you remove this pressure valve and skew those numbers to an even wider margin and you have, I would say justifiable, consternation about what we are doing here when the people who have been paying the bills are asked to pay more.

If the deduction is removed, presumably the tax rate could be adjusted downwards to compensate.

Arguably, it would make more sense to allow a deduction on state income tax for federal tax paid. That way the federal tax -- which (in theory, at least) pays for services that benefit all states -- is imposed consistently across all the states. Individual states can then decide how much to tax their citizens to pay for the state's local services, without skewing how the federal tax burden is applied.

> Why should a state be allowed to reduce the federal government's take

Because a state can often do a more effective job of using the money than the federal government.

> and therefore shift the burden of paying for federal services to other states

If you look at the states with high enough income taxes for this to all be relevant, they tend to be "donor" states that pay a lot more to the federal government than they get back.

It might be a good idea to even that all out, but eliminating the local and state tax deduction doesn't help.

> Because a state can often do a more effective job of using the money than the federal government.

That's just a general argument for preferring local taxation and services over federal ones. I don't think it follows that states should be able to undermine federal taxation by increasing their own taxes. If you believe the federal government should be smaller, and state/local governments bigger, then make that case directly and argue for an overall reduction in federal taxation.

States rights.

You can imagine a 110% tax rate in any system.

This isn't an argument agains the system, unless the rate actually is 110%.

Yeah, that all Americans pay the same federal income tax rates is just basic fairness.

I've never seen anyone who doesn't personally benefit from the SALT deduction argue for it.

Exactly. If not, the states then get to keep a large amount of money while the feds then do a rougly equal split of tax revenue to states. It's a cheaters' way to basically rob other states to fund your own agenda, and I hate it.

While I think you're right in principle (it makes more sense conceptually to deduct fed tax from the state tax) I think the practice is that most of the high state tax states pay in far more to the government than they receive and the other ones are usually moochers.

Yeah, but that's a consequence of having a redistributive progressive tax system.

Rich, high income states will subsidize poor low income states.

Why it so happens that the rich, high income states these days are liberal with high taxes and the poor ones the opposite, is an interesting question without an obvious answer.