The Tax Cuts and Jobs Act lowered income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es for the vast majority of Americans, but there are geographic disparities when it comes to the impact of the law. High-income tax filers, particularly in high-tax states, are impacted differently than middle-income filers due to the new $10,000 cap on the deduction for state and local taxes paid. Family size matters too; the new child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. lowers taxes for a number of filers. Not everyone in the country is affected in the same way.
|Los Angeles County, California
|Minnehaha County, South Dakota
S&L Income/Sales Tax Deduction
S&L Property Tax Deduction
Interest Paid Deduction
Other Itemized Deductions
Change in After-Tax Income
As demonstrated in the table above, taxpayers from different states and counties can have significantly different estimates in changes to after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize after-tax income. . To help illustrate the differences, we’ve estimated the impact of the tax changes on average taxpayers in every congressional district. Check out the map for yourself below.
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To arrive at our figures, we used county level data provided by the Internal Revenue Service (IRS). The IRS dataset includes aggregate taxpayer statistics stratified by county and income level. For each stratum, we created six sample taxpayers based on their filing status and their election to itemize deductions. For example, both an itemizing and non-itemizing single, married, and head of household taxpayer were created for each county and income level. The sample taxpayers’ change in tax liability since the Tax Cuts and Jobs Act (TCJA) went into effect were then weighted by their respective shares in each stratum.
For each taxpayer we modeled wage income, taxable interest, ordinary and qualified dividends, long-term capital gains, business/professional income (schedule C), partnership/S corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). income (schedule E), the state and local income/sales tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. , the state and local property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. deduction, the mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. , and the charitable contributions deduction. Single and head of household taxpayers were assumed to take half the itemized deductions of joint taxpayers in their stratum. Increased corporate profitability was modeled by scaling up taxpayers’ dividends and capital gains in a manner in accordance with our Taxes and Growth Model’s methodology.
A statistical match was then performed using Tax Foundation calculations to align the county level results with their congressional districts based on each county’s respective population in each congressional district.
While analysis based on aggregate statistics such as the IRS county level data is inherently less robust than analysis based on properly sampled datasets, we believe that our results do a decent job at demonstrating the geographic disparities from the TCJA. While our map includes tax cuts across every income level and congressional district, it’s important to remember that our figures only represent the average taxpayer, and that some particular taxpayers might see tax increases. Similarly, some filers might have specific tax decreases that are larger than those illustrated.
For a more exhaustive analysis of other effects of the legislation, please see out full report on the Preliminary Details and Analysis of the Tax Cuts and Jobs Act.
Finally, due to data availability issues, our congressional districts correspond to those of the 113th Congress (January 2013 to January 2015), which differs from the current district maps in several states such as North Carolina and Pennsylvania.Share