August 1, 2012 How the States Would Be Affected by Extension of the Bush Tax Cuts and Other Provisions William McBride Ed Gerrish William McBride, Ed Gerrish Print this page Subscribe Support our work Download Fiscal Fact No. 325: How the States Would Be Affected by Extension of the Bush Tax Cuts and Other Provisions With just five months to go until the largest tax increase since World War II, a.k.a. “Taxmageddon,”[1] some people are becoming concerned about the impact it will have on the economy.[2] This week, the House will vote on a Republican 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.[3] 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).[4] Extension of the Bush tax cuts, which are more evenly distributed, would save taxpayers about $179 billion. The bill also extends estate and gift tax provisions for one year, 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.[5] 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. 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 calculations Generally, high-income states would receive the largest tax relief, because they pay the most taxes under our extremely progressive federal income tax code.[6] 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 one-third (28 percent) of that is due to the AMT patch. Tennessee would save about $4.4 billion in taxes, which is 3.21 percent of income or $1,533 per tax filer. Only about one-quarter of that is due to the AMT patch. Appendix: Methodology The table below shows each of the provisions scored by the JCT, and the rule we used to apportion the tax relief to the states. Most provisions can be directly tied to those who have taken them in the past in each state, based on IRS returns from 2010, such as the AMT and the child credit. However, the apportionment of the provisions related to the brackets is more error prone, due to the wide income intervals the IRS provides at the state level. For instance, the IRS provides data on those earning between $200,000 and $500,000, but the top rate applies to taxable income of $388,350 or more. As such, we estimated the share of income taxed at various rates based on the latest IRS data. Table 2. JCT Estimate of Tax Cuts Contained in “The Job Protection and Recession Prevention Act of 2012″ and Tax Foundation Rules for Apportionment to the States Tax Relief ($Millions) Provision 2013 2013-2012 Rule for Apportionment A1a – Retain 10% bracket $30,723 $43,890 To all filers with positive AGI. A1b – Retain 25% & 28% bracket $12,731 $18,187 2/3rds to filers earning more than $50,000, 1/3rd to filers earning more than $100,000. A1c – Retain 33% & 35% bracket $22,350 $31,929 1/2 to filers earning more than $200,000, 1/2 to filers earning more than $500,000. A1d – Repeal limitation on itemized deduction and the personal exemption phaseout $5,664 $10,892 To all filers earning more than $200,000. A2 – Child tax credit $4,117 $35,632 To all filers taking the child credit, according to income. A3a and A3b: Marriage penalty relief $4,310 $9,239 To all joint filers, according to income. A4 – Education $360 $2,212 To all filers taking the tuition and fees deduction, according to income. A5 – Dependent care tax credit $62 $249 To all filers taking the dependent care tax credit, according to income. A6 – Adoption credit $154 $513 To all filers taking the adoption credit, according to income. A7 – Employer-provided child care credit $23 $23 Excluded. A8 – Alaska Native Settlement Trusts $4 $4 Excluded. B1: Tax capital gains at 0%/15% $14,172 $10,123 To all filers reporting capital gains, according to income. B2: Tax dividends at 0%/15% $5,406 $15,731 To all filers reporting dividends, according to income. Extension of estate and gift tax provisions $3,606 $31,207 To all filers earning more than $500,000. Section 179 – Small business expensing $2,109 $581 To all filers reporting business income, according to income. AMT $122,248 $192,734 To all filers who pay the AMT, according to income. Total $228,027 $403,147 [1] William McBride, Taxmageddon Looms, Potentially Pushing Tax Freedom Day Later than Ever, Tax Foundation Fiscal Fact No. 297 (Apr. 16, 2012), https://taxfoundation.org/article/taxmageddon-looms-potentially-pushing-tax-freedom-day-later-ever. [2] Douglas Holtz-Eakin & Ike Brannon, American Action Forum, New Study Examines Economic Effects of the Fiscal Cliff (July 17, 2012), http://americanactionforum.org/topic/new-study-examines-economic-effects-fiscal-cliff. [3] House of Representatives, Committee on Ways and Means, Democrats’ Ticking Time Bomb, Part I, June 11, 2012, http://waysandmeans.house.gov/News/DocumentSingle.aspx?DocumentID=299226. [4] Joint Committee on Taxation, Estimated Revenue Effects of H.R. 8, The “Job Protection and Recession Prevention Act of 2012” (July 24, 2012), https://www.jct.gov/publications.html?func=download&id=4476&chk=4476&no_html=1. [5] Internal Revenue Service, SOI Tax Stats – Historic Table 2, http://www.irs.gov/taxstats/article/0,,id=171535,00.html. [6] William McBride, CBO Report Shows Increasing Redistribution in the Tax Code Despite No Long-term Trend in Income Inequality, Tax Foundation Fiscal Fact No. 322 (July 24, 2012), https://taxfoundation.org/article/cbo-report-shows-increasing-redistribution-tax-code-despite-no-long-term-trend-income-inequality. Topics Center for Federal Tax Policy Alternative Minimum Tax (AMT) Business Taxes Corporate Income Taxes Data Estate, Inheritance and Gift Taxes Individual and Consumption Taxes Individual Capital Gains and Dividends Taxes Research Tags George W. Bush Millionaires and High Income Earners