How the States Would Be Affected by Extension of the Bush Tax Cuts and Other Provisions
August 3,2012
Andrew Lundeen – Tax Foundation
With just five months to go until the largest tax increase since World War II, a.k.a. “Taxmageddon”, some people are getting concerned about the impact on the economy. This week the House will vote on a GOP 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.
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). Extension of the Bush tax cuts, which are more evenly distributed, would save taxpayers about $179 billion. The bill also extends for one year estate and gift tax provisions, 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. 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.
Generally, high-income states would receive the largest tax relief, because they pay the most taxes under our extremely progressive federal income tax code. They are also the states most affected by the AMT. New York, for instance, would save about $50 billion in taxes, or 7.99 percent of income, if these tax cuts were extended, including the AMT patch. That amounts to $5,418 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 6.87 percent of income, if all tax cuts were extended. That amounts to $4,229 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 3.19 percent of income, if all tax cuts were extended. That is $1,327 per filer. Less than 1/3rd (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 1/4th of that is due to the AMT patch.