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January 06, 2005

The eternal relevance of state taxes

Even though I've lived my whole life in two states with high income taxes, I've long been a proponent of eliminating the deduction of state income taxes on the federal return. My complaint is that residents of these states don't have to bear the full brunt of the high tax rates, because the deduction results in a de facto "subsidy" of their state taxes. Feel the pain, fellow citizens, and put the pressure on your state representatives or vote with your feet!

I was reminded of this a few days ago, when someone pointed out that Carlos Beltran could be wooed more easily to stay on the Houston Astros, because Texas has no state income tax, than to leave to join the New York Mets, who play in a high-tax state. The Astros could offer a contract considerably smaller than a Mets contract, and Beltran could have the same net income. There's an interesting analysis of some of this at (Link via MetsBlog.)

I've also always been both amused and irritated by the tax-makers' fixation on "static revenue analysis," because it makes no sense to me to assume that tax rates have no effect on private behavior. I don't know what Beltran will ultimately do, but it's obvious his agent will extract a heck of a lot more money from the Mets to make up for the state taxes.