Federal Fairness to State Taxpayers: Irrationality, Unfunded Mandates, and the 'Salt' Deduction

48 Pages Posted: 23 Apr 2007 Last revised: 16 Mar 2008

See all articles by Brian D. Galle

Brian D. Galle

Georgetown University Law Center


By sheer dollars alone, the largest impact of the Alternative Minimum Tax is to deny many taxpayers the deduction for the taxes they paid to their state and local governments under § 164 of the Internal Revenue Code. This Article provides a fine-grained analysis of the overall fairness of the state- and local-tax deduction ¿ and, by implication, the fairness of its partial repeal through the Alternative Minimum Tax. I offer for the first time a close examination of how newly understood limits on taxpayer mobility and rationality might affect individuals' choices of bundles of local taxes and local government services, which in turn informs our assessment of the "fairness" of those exchanges. Many of these lessons can be generalized to consumer choices more generally. In addition, I track the reciprocal benefits and burdens that flow between the national government and local governments ¿ again, although the influx or outgo of billions of dollars surely affects how the federal tax system should account for the outputs of local government, scholars have neglected that question. Finally, I note that § 164, and therefore the Alternative Minimum Tax, can have serious effects on federal-state relations, such that the debate over both provisions is in many ways a debate not only over fairness but also about federalism.

Keywords: Alternative Minimum Tax, AMT, state and local tax, section 164, horizontal equity

Suggested Citation

Galle, Brian D., Federal Fairness to State Taxpayers: Irrationality, Unfunded Mandates, and the 'Salt' Deduction. Michigan Law Review, Vol. 106, p. 805, March 2008, FSU College of Law, Public Law Research Paper Series No. 259, Available at SSRN: https://ssrn.com/abstract=997036

Brian D. Galle (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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