Did the 2017 Tax Reform Discriminate against Blue State Voters?

David Altig, Alan Auerbach, Patrick Higgins, Darryl R. Koehler, Laurence Kotlikoff, Michael Leiseca, Ellyn Terry and Yifan Ye

No 25770, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating all major federal and state fiscal policies. We find that the average percentage increase in remaining lifetime spending under the TCJA is 1.6 percent in red states versus 1.3 percent in blue states. Among the richest 10 percent of households, this differential is larger. Rich households in red states enjoyed a 2.0 percent increase compared to a 1.2 percent increase among the rich in blue-state households. This gap is driven almost entirely by the limitation on the SALT deduction. Excluding the SALT limitation from the TCJA results in a spending gain of 2.6 percent for rich red-state households compared to 2.7 percent for rich blue-state households.

JEL-codes: D15 D31 D72 E62 H20 H22 H71 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-mac, nep-pbe, nep-pol and nep-pub
Note: PE POL
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Citations: View citations in EconPapers (7)

Published as David Altig & Alan Auerbach & Patrick Higgins & Darryl Koehler & Laurence Kotlikoff & Ellyn Terry & Victor Ye, 2020. "Did the 2017 Tax Reform Discriminate against Blue-State Voters?," National Tax Journal, vol 73(4), pages 1087-1108.

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Journal Article: Did the 2017 Tax Reform Discriminate against Blue-State Voters? (2020)
Working Paper: Did the 2017 Tax Reform Discriminate against Blue State Voters? (2019)
Working Paper: Did the 2017 Tax Reform Discriminate against Blue State Voters? (2019)
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