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Trump tax cuts helped rich people in GOP states more than in Democrat states
CNBC
Mon, 22 Apr 2019 18:33

Trump tax cuts helped rich people in GOP states more than in Democrat states

CNBC
Mon, 22 Apr 2019 18:33

President Donald Trumps landmark 2017 tax legislation will benefit rich households in Republican states more than rich households in Democrat states, a new research paper says.

Trump tax cuts helped rich people in GOP states more than in Democrat states


The richest 10% of households in red states are forecast to see a 2% increase in remaining lifetime spending as a result of the presidents Tax Cut and Jobs Act, according to the study from the Federal Reserve Bank of Atlanta, University of California Berkeley and Boston University.

The paper released Monday found rich blue-state households should see just a 1.2% increase.
The lopsided boost to those in Republican states over Democrat can be attributed to the legislations limitations on state and local property, income and sales tax deductions, according to research by Atlanta Fed economist David Altig, UC Berkeley professor Alan Auerbach et al.
Perhaps best known on Wall Street for lowering the corporate rate tax to 21%, the Trump administrations Tax Cut and Jobs Act also made notable changes to personal taxation. Republican leadership cut the top individual income tax rate from 39.6% to 37% and modified the amount for a number of tax credits. It also nearly doubled the standard deduction to about $12,000 for singles and $24,000 for married joint filers.

But one of the most drastic changes included a $10,000 limitation on the amount of state and local taxes (SALT) that can be deducted. Since there was no prior cap on the amount taxpayers could deduct, states with high state and local taxes (which typically vote Democratic) are poised for less benefit.

"If changes to SALT had not occurred, the gains in spending would have been very similar for the top 10 percent regardless of state," Altig wrote. "Excluding the SALT limitation from [the Tax Cut and Jobs Act], the average red-state spending gain is 1.9 percent versus 2.1 percent for blue states."

As such, the presidents signature tax reforms have sparked debate in across the country, splitting Democrats and Republicans over the federal deficit and the distribution of the benefit.

Blue states including New York, New Jersey and Connecticut — among the states with the highest property taxes — sued the federal government and insist the SALT limit is unfair to their residents. Citizens of those states likely wont see as much benefit from the Tax Cut and Jobs Act thanks to higher local taxes.

In 2015, the average SALT deduction for New Yorkers who claimed the tax break was more than $22,000.

On the other hand, Republicans assert that repealing the SALT deduction would disproportionately benefit high-income taxpayers. The non-partisan Tax Policy Center estimates that about 9% of households would benefit from a repeal of the $10,000 cap on the SALT deduction and more than 96% of the cut would accrue to the top income quintile of households.