Friday, February 7, 2020
Gladriel Shobe (BYU) presents Economic Segregation and the Local Tax Deduction at Florida today as part of its Tax Colloquium Series hosted by Yariv Brauner:
Economic segregation has increased over the past half century. The trend of rich localities getting richer while poor localities get poorer is particularly concerning because it limits upward mobility and perpetuates intergenerational income inequality. This Article makes the novel argument that the state and local tax deduction rewards, and likely contributes to, economic segregation. It arrives at that conclusion by showing that the “local tax deduction” provides a greater subsidy, per capita, for wealthy, economically segregated localities because only those localities have a critical mass of wealthy taxpayers who claim the deduction. This allows wealthy localities, but not poor localities, to provide services at a costless than face value to their residents. This Article argues that the deduction’s subsidy for wealthy localities rewards and likely contributes to economic segregation because it provides an incentive for the wealthy to segregate into wealthy, subsidized localities over less segregated and less subsidized localities.
This Article’s analysis and arguments are particularly relevant in light of the recent Tax Cuts and Jobs Act, which controversially capped the state and local tax deduction at $10,000. This Article steps back from the political contention surrounding the deduction to analyze it from a tax policy perspective in light of its effects on economic segregation. It shows that the $10,000 limitation reduces the deduction’s subsidy for economic segregation and proposes alternatives that would also reduce the subsidy for economic segregation but which would be better tax policy.