One of the reforms to the tax code proposed by Paul Ryan involves the deductibility of state income taxes against federal income taxes. He’d like to eliminate that provision, stating it’s basically a subsidy for high-income tax states like California and New York, who can spread the burden of their state deficits across tax payers throughout the country. The state of California’s finances are abysmal and why should voters in Wisconsin help pick up the tab? While subsidies to energy and agriculture have been in place for a long time – and one can argue for them in terms of national interest although that might not convince some people – the only justification for this particular subsidy is to gain votes on both coasts.

Subsidies in America have been around a long time; tariffs were slapped on British coal in 1789 by the newly minted government. Given they had just fought a war to liberate themselves from perfidious albion, it made both military and mercantile sense that such a subsidy was enacted to protect and encourage local industry and gain energy independence. In terms of agriculture, the USDA really expanded it’s functions under Roosevelt in the 30’s and no one has been able to roll back agricultural subsidies since that time. Agricultural lobby groups have co-opted the support of those who favor food stamp programs in urban centers as well as those who support environmental subsidies, linking them back to agricultural subsidies. So good luck on trying to cut back on agricultural subsidies.

Ryan might have a little more luck with state income tax deductions. If he does indeed end up heading Ways and Means, then he will have the position, and perhaps the clout although that is less certain, to push for eliminating the deductibility. The only thing the state income tax deductibility subsidizes is deficit spending in California. If Ryan deems that compromise with California and New York on this issue is not vital, then he may succeed. Voters in Wisconsin, and quite a few other states, undoubtedly hope he does.

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