How the States Would Be Affected by Extension of the Bush Tax Cuts and Other Provisions

 
 
July 31, 2012

With just five months to go until the largest tax increase since World War II, a.k.a. “Taxmageddon”, some people are getting concerned about the impact on the economy.  This week the House will vote on a GOP proposal to extend through 2013 the Bush tax cuts of 2001 and 2003 and the Alternative Minimum Tax (AMT) patch, two of the largest components of Taxmageddon. 

The larger of these is actually the AMT patch, which would save middle- and high-income taxpayers about $193 billion, according to the Joint Committee on Taxation (JCT).  Extension of the Bush tax cuts, which are more evenly distributed, would save taxpayers about $179 billion.  The bill also extends for one year estate and gift tax provisions, saving taxpayers $31 billion, and small business expensing, worth $581 million. 

The total tax relief is estimated at $403 billion, or about 2.7 percent of the economy, and almost all of it would be immediately felt in 2013.  As such, it would forestall many of the economy crushing aspects of Taxmageddon, while setting the stage for comprehensive tax reform next year.

All 50 states would benefit from this bill, though some more than others.  Table 1 shows our estimates of the tax relief for each state, based on the latest IRS data on the distribution of income, tax credits, and deductions within each state.  The first column is total aggregate tax relief in millions of dollars, the next column is tax relief as a share of state income (AGI), and the last column is tax relief per tax filer. 

Generally, high-income states would receive the largest tax relief, because they pay the most taxes under our extremely progressive federal income tax code.  They are also the states most affected by the AMT.  New York, for instance, would save about $51 billion in taxes, or 8.05 percent of income, if these tax cuts were extended, including the AMT patch.  That amounts to $5,452 per tax filer.  More than half of that (62 percent) is due to the AMT patch.  California would save about $71 billion in taxes, or 6.89 percent of income, if all tax cuts were extended. That amounts to $4,242 per tax filer.  Again, more than half of that (60 percent) is due to the AMT patch.

At the other end of the spectrum, Mississippi would save about $1.7 billion in taxes, or 3.15 percent of income, if all tax cuts were extended.  That is $1,310 per filer.  Less than 1/3rd (28 percent) of that is due to the AMT patch.  Tennessee would save about $4.3 billion in taxes, which is 3.18 percent of income or $1,522 per tax filer.  Only about 1/4th of that is due to the AMT patch.

 

Table 1. Tax Relief from a one-year Extension of Bush Tax Cuts and AMT Patch

 

Extension with AMT Patch

Extension without AMT Patch

In Millions of Dollars

As a Share of Income

Per Tax Return

In Millions of Dollars

As a Share of Income

Per Tax Return

Alabama

$3,144

3.18%

$1,496

$2,250

2.27%

$1,070

Alaska

$603

2.80%

$1,613

$479

2.23%

$1,283

Arizona

$4,970

3.53%

$1,828

$3,302

2.35%

$1,215

Arkansas

$2,309

4.06%

$1,886

$1,480

2.60%

$1,209

California

$70,780

6.89%

$4,242

$28,440

2.77%

$1,705

Colorado

$6,139

4.31%

$2,590

$3,684

2.59%

$1,554

Connecticut

$9,990

6.86%

$5,783

$4,816

3.31%

$2,788

Delaware

$948

3.97%

$2,216

$526

2.20%

$1,230

DC

$1,583

6.66%

$4,902

$660

2.78%

$2,044

Florida

$20,028

4.29%

$2,079

$12,952

2.77%

$1,345

Georgia

$8,969

4.15%

$1,954

$5,065

2.34%

$1,104

Hawaii

$1,246

3.73%

$1,907

$726

2.18%

$1,111

Idaho

$1,209

4.09%

$1,823

$743

2.51%

$1,121

Illinois

$16,231

4.48%

$2,686

$9,568

2.64%

$1,583

Indiana

$4,814

3.36%

$1,615

$3,203

2.24%

$1,074

Iowa

$2,635

3.65%

$1,882

$1,633

2.27%

$1,167

Kansas

$3,071

4.34%

$2,350

$1,817

2.57%

$1,390

Kentucky

$3,384

3.90%

$1,823

$1,995

2.30%

$1,074

Louisiana

$3,519

3.59%

$1,767

$2,415

2.46%

$1,213

Maine

$1,265

4.22%

$2,024

$647

2.16%

$1,036

Maryland

$10,031

5.25%

$3,599

$4,279

2.24%

$1,535

Massachusetts

$13,700

5.87%

$4,277

$6,607

2.83%

$2,063

Michigan

$8,406

3.69%

$1,825

$5,228

2.30%

$1,135

Minnesota

$7,256

4.76%

$2,833

$3,775

2.48%

$1,474

Mississippi

$1,681

3.15%

$1,310

$1,208

2.26%

$941

Missouri

$5,586

4.12%

$2,077

$3,328

2.46%

$1,238

Montana

$935

4.34%

$1,969

$527

2.44%

$1,110

Nebraska

$1,954

4.32%

$2,288

$1,179

2.61%

$1,380

Nevada

$2,750

4.12%

$2,176

$1,998

2.99%

$1,580

New Hampshire

$1,610

3.89%

$2,425

$1,015

2.45%

$1,529

New Jersey

$21,555

6.99%

$5,030

$7,954

2.58%

$1,856

New Mexico

$1,338

3.23%

$1,465

$940

2.27%

$1,029

New York

$50,555

8.05%

$5,452

$19,472

3.10%

$2,100

North Carolina

$8,937

4.30%

$2,126

$4,750

2.29%

$1,130

North Dakota

$656

3.53%

$1,985

$458

2.46%

$1,384

Ohio

$11,252

4.21%

$2,069

$5,985

2.24%

$1,101

Oklahoma

$2,991

3.76%

$1,881

$1,974

2.48%

$1,241

Oregon

$4,301

4.86%

$2,467

$1,996

2.26%

$1,145

Pennsylvania

$14,618

4.30%

$2,385

$8,217

2.42%

$1,340

Rhode Island

$1,294

4.57%

$2,541

$644

2.28%

$1,265

South Carolina

$3,453

3.67%

$1,683

$2,085

2.22%

$1,016

South Dakota

$657

3.31%

$1,668

$512

2.58%

$1,300

Tennessee

$4,332

3.18%

$1,522

$3,296

2.42%

$1,158

Texas

$24,504

3.95%

$2,229

$17,062

2.75%

$1,552

Utah

$2,420

4.11%

$2,133

$1,574

2.67%

$1,387

Vermont

$749

4.78%

$2,357

$359

2.29%

$1,129

Virginia

$11,004

4.50%

$2,951

$5,840

2.39%

$1,566

Washington

$6,763

3.54%

$2,134

$4,709

2.47%

$1,486

West Virginia

$1,199

3.37%

$1,530

$756

2.12%

$965

Wisconsin

$6,021

4.19%

$2,196

$3,357

2.33%

$1,224

Wyoming

$886

5.01%

$3,205

$634

3.58%

$2,292

Source: JCT, IRS, Tax Foundation

For a more detailed description of the methodology, see Fiscal Fact No. 325: How the States Would Be Affected by the Extension of the Bush Tax Cuts and Other Provisions

Follow William McBride on Twitter @EconoWill

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