by Mitch Kokai
Senior Political Analyst, John Locke Foundation
When Republicans were putting together their tax reform plan last year, a chorus of critics warned that it would devastate state budgets. Like so many other claims, this turned out to be false. …
… But once President Trump signed the tax reform into law, state budget officials started reporting that revenues will actually increase because of it.
New York’s Department of Taxation and Finance, for example, reported in January that it expects tax revenues to go up by $1.1 billion in 2019 because of the tax law. This is a state, mind you, whose governor, Andrew Cuomo, described the tax bill as a “missile of destruction … aimed at New York.” …
… The Tax Foundation, which has been collecting this data, reports that 18 states so far say they expect at least a modest boost in revenues as result of the Republican tax plan.
The reason for this windfall is that the tax bill expanded the tax base — by limiting or ending deductions — in exchange for lower income tax rates. In states that rely on federal tax law for their own income taxes, this can result in extra revenue if those states keep their income tax rates the same. (States could also get more tax revenue as tax reform boosts economic growth.)
To some extent, then, the tax cuts shifted a bit of the tax burden to the states. Is that a bad thing? Not if the states use the windfall to cut their own tax rates or reform their tax code.