Why We Will All Be Paying For The Latest State Tax Hikes

I live in Las Vegas and we have no State income tax. Yet, when California raises it's taxes, I will probably pay for it too; someday. The same is true if New York raises its taxes. That's because, overall, the Federal tax revenues are being reduced with every increase in State income and sales taxes; and, eventually, the Federal government will have to make up for those losses by, somehow, taxing us all.

Under the current tax laws, you have a choice of taking the standard deduction against your income or, instead, itemizing your deductions. In most cases, small businesses or high salaried/income tax filers already itemize their deductions because they have an aggregate amount of income offsets that exceed the standard IRS deduction. As part of that itemized deduction process, you can either deduct your State income tax or your paid State sales taxes; but, not both.

So, if a State, like California or New York, raises their income tax rate by, say, 1 percent, the high salaried/income or small business residents of that State, who are able to itemize deductions on their Federal tax returns, will effectively reduce their Federally taxed income by 1 percent; and, as a result, the Federal taxes on that income would be totally lost. The same is true in States that have no income tax, like Nevada or Florida or Texas, but raise their sales taxes. Federal tax filers in those States who itemize will be able to reduce their taxable income by the effective increase in their State's sales tax rate.

In a country that increasingly depends on the so-called rich of our society to pay their taxes so that others won't have to, this is another tax law problem that will make it more difficult for Obama to pay for all his spending because it primarily affects the highest taxpayers of this country. This, too, is why I think the deficit will be greater than what the Obama Administration thinks; because, besides the loss of tax revenues from reduced business activity and lost jobs, they will be losing increased tax revenues as a result of the 10 or more States that are planning some massive tax hikes on sales and income taxes(See Full Story). That's not just my opinion but a fact!