In an op-ed in today's LA Times, entitled "Smart Tax Laws Would Put More Money in California's Pocket", UCLA Professor Kirk Stark suggests a way to maximize deductibility of state taxes against federal tax. Noting that the repealed car tax increase was tax-deductible he suggests that not only was repeal a bad idea, but the state needs to restructure taxes in general to increase deductible taxes while decreasing non-deductable ones. His suggestion:
Repeal the sales tax and replace it with some tax, any tax, that is deductible for federal income tax purposes....Just so. And here is the little problem he neglects to mention: Most of the tax increases would fall upon the people who receive the fewest state services, and most of the reduction would go to people who are the largest consumers of state services. In fact, with this proposal, large numbers of people who now only pay sales taxes would suddenly have no tax burden at all. Making it all the easiser to get their votes for more taxes, bonds and other funding for the services they consume. Which doesn't seem to bother Professor Kirk as he also suggests that the "reform" be structured to increase overall taxation.
How exactly should the state change its tax structure to take advantage of the saving possibilities? Because the federal income tax deduction is most valuable to individuals in the highest federal income tax brackets, the most effective strategy would be to replace the sales tax with an income tax on high-income individuals. Or if Proposition 13 were on the table [...] then increased property taxes could be used to replace sales taxes. That sort of fiscal reshuffling would be highly controversial. Because the distributional effects of these taxes are so different, some people would pay more in taxes while others would pay less.