Regarding treasuries, Mr. Sheard is right: there is no reduction in the money supply when the Fed allows any of its $2.4 trillion of treasuries to roll off its balance sheet. The Fed merely debits the government’s checking account by the amount of any maturing bonds.
In 2013, one of the most prominent economists in the U.S., Harvard professor Martin Feldstein, warned investors, “The banks can use these excess reserves to create loans and deposits, which will increase the money supply and fuel inflation.”
Anyone reading today’s financial press would think the U.S. economy is accelerating—finally taking off from its post-financial crisis lackluster performance to what Tom Brokaw called “a roaring economy” on Meet the Press this past weekend.
So, whether individual taxpayers pay more or fewer state taxes depends on their states’ respective definitions of income, deductions, and exemptions. However, taxpayers in some states will probably end up paying both higher federal and state taxes.