Tuesday, March 19, 2013
The House Ways & Means Committee holds a hearing today on Tax Reform: What It Means for State and Local Tax and Fiscal Policy:
A number of different Federal tax provisions directly affect State and local governments. By far the largest tax expenditure affecting State and local governments is the itemized deduction for State and local taxes. Individual taxpayers who itemize may generally deduct their State and local income and property taxes. For some taxpayers, this deduction is reduced by the recently reinstated “Pease” limitation on itemized deductions and it is disallowed for taxpayers subject to the Alternative Minimum Tax (AMT). In addition, taxpayers may elect to deduct general sales taxes in lieu of income taxes, although this deduction expires at the end of this year, is also subject to the Pease limitation, and is disallowed under the AMT.
State and local governments also benefit from favorable Federal tax treatment of certain types of bonds they issue, including tax-exempt bonds, tax-credit bonds, and “direct-pay” bonds. In addition, numerous other Internal Revenue Code provisions have a significant impact on State and local governments, including pension and retirement provisions and payroll tax provisions, among others.
- John Buckley (Georgetown University Law School Graduate Tax Program)
- Scott Hodge (Tax Foundation)
- David Parkhurst (National Governors Association)
- Christopher Taylor (Municipal Securities Rulemaking Board)
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Information Related to Federal Taxation and State and Local Government Finance (JCX-7-13):
This document ... summarizes the provisions and discusses economic issues of allowing a deduction for certain State and local taxes, tax-exempt and tax-credit bond provisions, the taxation of income of States and municipalities, and the treatment of contributions in aid of construction. This document also provides select background data relating to State and local tax revenues and State and local bonds.