Actually, I do like this incentive structure when put in this way. I think incentivizing people to take responsibility for themselves with only limited amounts of help from the federal government is the right thing to do.
That's not what this structure does, though. It just incentivizes states to collect more revenue than they otherwise would, at the expense of federal collection.
It is not a 1:1 ratio though as it really only lowers your taxable income. I agree that it should be limited but states should be incentivized to not need the federal government for much.
