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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, May 14, 2018

NY Times: Federal Tax Cuts Leave States In A Bind

New York Times, Federal Tax Cuts Leave States in a Bind:

The federal tax overhaul cut taxes for millions of American families and businesses. But the law also had an unintended effect: raising the state-tax bite in nearly every state that has an income tax.

Now, governors and state legislators are contending with how to adjust their own tax codes to shield their residents from paying more or, in some cases, whether to apply any of the unexpected revenue windfall to other priorities instead.

The Tax Cuts and Jobs Act, which President Trump signed into law in December, did not directly affect state budgets. It cut federal tax rates, but also made other changes that mean more income will be subject to taxation. Because most states use federal definitions of income and have not adjusted their own rates, the federal changes will have big consequences for both state budgets and taxpayers.

NYT

“Residents of the majority of states would experience an unlegislated tax increase,” said Jared Walczak, an analyst with the Tax Foundation, a conservative think tank. ...

Apart from the nine states with no broad-based income tax, nearly every state will face a similar decision. Almost all of the states base their tax codes in some way on federal definitions of income, before applying their own adjustments and deductions and setting their own tax rates.

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Comments

But the law also had an unintended effect: raising the state-tax bite in nearly every state that has an income tax.

Why would the NY Times assume this result was not intended?

As to California, the old rules on gross income and deductions remain in force unless and until the state legislature enacts a conformity bill. I expect that to take years. If it happens, it will be accompanied by many state tax changes.

Posted by: AMTbuff | May 14, 2018 2:20:55 PM

Is there any evidence to support this? I'd be very interested in knowing the actual end tax rate for the average American compared to what it was before the Act was passed.

Posted by: Jason Vuu | May 16, 2018 4:37:39 PM

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