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Ok, I may not be an economist but this is crap
I work for a living and pay my fair share of taxes to the great Commonwealth. As a matter of fact I paid so much last year that they decided that I should get some of MY money back and sent me a tax refund.
Today I get a tax form from the great Commonwealth reminding me to claim that refund on my income this year so they will get a second chance at that money.
I just don't believe that this is what the founding fathers had in mind.
It hurts for sure! I feel your pain.
Your state tax refund is money that you paid to the state to cover your taxes, but overpaid. Since it was withheld, or otherwise paid, towards your taxes, it doesn't count as "taxable income" on your federal tax return. And since your state return is based on your federal return, it's in effect money that's never been taxed. Now, for me it's not a whole lot, but if they didn't make you declare it, there would be people out there having 3/4 of their income withheld as state tax, to avoid ever paying taxes on that money. Does that soften the blow any? It always irks me to have to declare that money, too, but at least there is a logical explanation for why we have to.