IN DEFENSE OF THE ITEMIZED DEDUCTION FOR TAXES

Here is an argument for allowing an itemized deduction for the full amount of state and local income and property taxes that I have often made, but which I do not hear very much from other sources.

An individual is taxed on gross income – gross salary for a W-2 employee.  So, a person living in New Jersey, where I used to live, and a person living in North East Pennsylvania, where I now live, pays the same tax rate on $100,000 of gross wages. 

But what it you deduct basic living costs, like mortgage principal and interest payments and state and local income taxes and property taxes – assuming that both taxpayers live in the same size home.  If you take the tax paid, using the Standard Deduction instead of Schedule A, as a % of what is left after subtracting these expenses the person in North East Pennsylvania is paying much less federal income tax, as a % of what is left after paying these expenses, than the person living in New Jersey on the exact same gross income – because the NJ resident has a lot less left.

In NJ wages are somewhat artificially inflated to reflect the increased cost of living.  So it is obvious that a $100,000 salary in NJ is not the same as a $100,000 salary in NEPA.

Allowing a deduction in full for state and local income taxes, property taxes, and acquisition debt mortgage interest on a taxpayer’s primary personal residence helps to “geographically equalize” the tax burden so that all taxpayers are treated relatively equally, regardless of where in the US they live.

So, what do you think?

TTFN