A State-by-State Estimate of Individual Income Tax Changes from Rangel’s “Mother of All Reforms” Bill

October 29, 2007

Download Fiscal Fact No. 111

Fiscal Fact No. 111

Last Thursday, House Ways and Means Committee Chairman Charlie Rangel unveiled his “mother of all tax reforms” package. On the individual tax side, the bill has two main components, a surtax levied on high-income earners and a repeal of the Alternative Minimum Tax (AMT), with other selected tax hikes and tax cuts thrown into the mix as well. In this brief Fiscal Fact, the Tax Foundation presents estimates of this plan (individual side only) by state for tax year 2008, which is the first year in which AMT would be repealed and the bill essentially fully implemented.

While Rangel’s plan on the individual side is technically revenue-neutral over the ten-year window, we estimate that this plan actually involves a tax cut of about $46 per person for tax year 2008. This is largely due to the fact that the benefits to taxpayers of repealing AMT are up-front but will fall once the Bush tax cuts sunset, as the scoring assumes. Therefore, because the table is only for tax year 2008, the numbers below in the third and fourth columns present a slightly more favorable look at the bill across the board relative to its full ten-year window.

Some Republicans have called Rangel’s plan a “blue-state tax cut” yet the numbers don’t entirely bear this out. The numbers presented here indicate that blue states do receive a larger tax cut than red states, about three times greater, but the dollar amount difference is only about $50 per return. In fact, red and blue states are scattered throughout the ranking. The state with the biggest tax cut, Vermont ($260 per return), and the state with the biggest tax hike, Connecticut ($419 per return), are both blue states. The average tax cut for blue states is $71 per return, while the average tax cut for red states is $21 per return.

Vermont is the top state for two reasons: (1) the state has very high state and local property and income taxes, making it ripe for AMT; and (2) the state has many moderately wealthy individuals ($75,000 – $200,000), but relatively few very wealthy taxpayers who would be hit by the surtax. On the other hand, many states at the bottom have low state and local taxes (e.g. Florida and Nevada) and/or a high percentage of very wealthy residents (e.g. Connecticut).

In terms of raw dollar amounts, the biggest winner is the state of California, which would receive about a $1.39 billion tax cut ($88 per tax return) in 2008 from Rangel’s bill. Ohio is slightly lower with a tax cut of $1.35 billion ($251 per tax return). At the bottom is Florida, which would face about a $2.3 billion tax increase ($261 per tax return).

The rankings are presented in Table 1 with a brief discussion of the methodology below.

Table 1. State-by-State Estimates of Change in Individual Tax Burden for 2008 Under Rangel Plan (Relative to Current Law)

Rank

State

Average Tax Cut Per Return

Aggregate Tax Cut
(in $thousands)

United States (Total)

$46

$6,227,550

1

Vermont

$260

$83,560

2

Ohio

$251

$1,353,392

3

Wisconsin

$244

$652,046

4

Maine

$224

$141,514

5

Oregon

$223

$368,288

6

Maryland

$221

$614,219

7

West Virginia

$205

$153,363

8

Michigan

$194

$883,889

9

Rhode Island

$191

$100,875

10

Iowa

$181

$251,455

11

Kentucky

$179

$325,841

12

North Carolina

$165

$658,008

13

Montana

$162

$73,703

14

Hawaii

$162

$106,094

15

South Carolina

$158

$305,375

16

North Dakota

$152

$47,141

17

Minnesota

$152

$383,451

18

Indiana

$146

$428,104

19

Alaska

$145

$51,476

20

Nebraska

$144

$115,579

21

Idaho

$142

$92,079

22

Pennsylvania

$131

$777,140

23

Kansas

$131

$167,471

24

Missouri

$121

$322,158

25

Arkansas

$121

$143,852

26

New Mexico

$105

$92,168

27

California

$88

$1,396,435

28

Mississippi

$83

$95,488

29

Alabama

$71

$137,656

30

Oklahoma

$66

$99,322

31

Georgia

$64

$256,076

32

New Jersey

$61

$264,750

33

Utah

$45

$48,525

34

Louisiana

$44

$75,965

35

South Dakota

$43

$16,056

36

New York

$37

$323,345

37

Virginia

$37

$135,864

38

New Hampshire

$35

$22,886

39

Tennessee

$10

$28,277

40

Delaware

-$25

-$10,379

41

Washington

-$29

-$86,160

42

Massachusetts

-$30

-$90,412

43

Colorado

-$68

-$150,860

44

Arizona

-$69

-$179,352

45

Texas

-$81

-$809,314

46

Illinois

-$84

-$494,289

47

Wyoming

-$174

-$45,071

48

District of Columbia

-$240

-$70,180

49

Florida

-$261

-$2,269,084

50

Nevada

-$361

-$432,714

51

Connecticut

-$419

-$727,519

Source: Multiple data sources, Tax Foundation calculations (see methodology below)

Conclusion
Despite the fact that this tax package involves around $84 billion worth of tax hikes in 2008 and $89 billion worth of tax cuts in 2008, there is not much redistribution across states. Specifically, less than $6 billion is redistributed from those states that see a net tax hike to those that see a net tax cut. Overall, the story is essentially redistribution of the tax burden across income groups from the wealthy to the moderately wealthy, even within states, but only limited redistribution between states.

Methodology
Each provision’s revenue cost or revenue raised in the bill on the individual tax side, as estimated by the preliminary release by the Joint Committee on Taxation, was allocated to each state using a system of allocators and various data sources. These data sources included: IRS (Table 2, Tables by AGI and filing status, and projected returns by state for future tax years), JCT, Urban-Brookings Tax Policy Center (AMT), Institute on Taxation and Economic Policy (AMT by state), 2006 American Community Survey from the U.S. Census Bureau (EITC and others), and the latest IRS Public Use File. Note: Adjustments were made for differences in fiscal year and tax year, including adjustments for the interaction effect where we applied an adjusted number for 2008 based upon 2009’s amount, not FY 2008.


Topics


Tags


About the Author


Related Research