Indirect Federal Subsidy and Tax Exportation through State and Local Tax Deduction: Understanding the Impact of the 2017 Tax Reform on State and Local Governments

Yonghong Wu

Publius: The Journal of Federalism, 2022, vol. 52, issue 1, 154-172

Abstract: The deduction of certain state and local taxes (SALT) from the U.S. federal income tax base provides substantial amounts of indirect federal subsidy to state and local governments and also allows cross-state exportation of deductible state and local taxes. The Tax Cuts and Jobs Act of 2017 (TCJA) limits the SALT deduction and increases standard deduction per filer each year. This study examines the impact of TCJA on the distribution of this indirect federal subsidy and exportation of major state and local taxes. Using individual income tax data from the Internal Revenue Service, this research shows that the law narrows the disparity in states’ receipt of the indirect federal subsidy and reduces the capacity of high-tax states to export their taxes to other states. The findings shed light on the continued debate regarding the effectiveness and fairness of this important type of intergovernmental transfer in the United States.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/publius/pjab028 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:publus:v:52:y:2022:i:1:p:154-172.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Publius: The Journal of Federalism is currently edited by Paul Nolette and Philip Rocco

More articles in Publius: The Journal of Federalism from CSF Associates Inc. Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().