Working Paper: NBER ID: w1714
Authors: Robert P. Inman
Abstract: Recent proposals to reform the U.S. tax code all contain significant reforms of the cufrent provision allowing for the deductibility of state and local taxes.This paper examines the effect of deductibility reform on the revenue decisions of the largest U.S. cities. The analysis of eight alternative reforms concludes:(1) total taxes change very little in the long-run, falling at most by 13% and, for many cities, even rising slightly; (2) fees and license revenue (predominantly a tax on firms) generally fall, in some cases by 30% or more; (3) the net effect on total revenues (tax plus fees) is generally small, never declininq by more than 12% even with full loss of deductibility; and (4) policies to offset city revenue losses are effective in neutralizing the negative effects of deductibility reform.
Keywords: Deductibility; Local Taxation; Public Finance; Tax Reform
JEL Codes: H71; H73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| removal of deductibility (H20) | local tax decisions (H71) |
| deductibility reform (H20) | business-related tax revenues (H25) |
| deductibility reform (H20) | total revenues (H27) |
| policies aimed at offsetting city revenue losses (H29) | local revenue outcomes (H71) |