GOP tax overhaul will be felt by state, local governments

With Congress sending President Donald Trump a tax overhaul, state and local governments are preparing for some fallout.

A look at some of the ways it might affect them: result in a boom or bust for state revenues.

For example, about dozen states currently link their standard income tax deduction to the federal amount, which is set to double. A similar doubling for states could result in an additional tax cut for their residents and a significant revenue loss for those states. But many of those same states also link their personal income tax exemptions to the federal one, which is due to be repealed. That could trigger a tax increase for their residents and an influx of money for such states.

Michigan Gov. Rick Snyder, a Republican, said Thursday that he wants lawmakers to work on a fix in the coming year. An individual in his state could owe $170 more in state taxes and a married family of four an additional $680 as a result of eliminating the personal exemption.

Many states also use federal tax laws as a basis for their corporate income taxes. So federal changes to business expense deductions could carry over to states.

The Tax Foundation says some states linking to the federal law also could see a windfall from a federal provision imposing a low, one-time tax on the foreign profits of U.S.-based businesses. president of the National League of Cities and mayor of Little Rock, Arkansas, said they were grateful the deductions were not eliminated entirely, but said their groups will fight to have them fully restored in subsequent legislation.

In addition to the deductions, the tax bill eliminated the tax-exempt status of socalled “advance refunding bonds,” which are used by local governments to refinance municipal debt. The counties’ association says this had been an important tool that enabled counties to save taxpayer money, particularly on infrastructure projects. his proposal as the tax changes moved through Congress.

Now, he’s concerned about whether a state tax hike that would be felt more deeply for people who can no longer deduct it from their federal returns might backfire. Could it drive wealthy people out of the state? Will it push down home values?

“I’m not saying I’m walking away from it,” Sweeney told The Associated Press. “I need to put the brakes on it until I know the impact.”

The administrations in both New York and California said they wouldn’t detail how they might respond to federal changes until they release their state budget proposals in January.

In Connecticut, Gov. Dannel Malloy’s spokeswoman, Kelly Donnelly, said it’s too early to tell how the budget might be affected by federal tax changes. millionaires and retirees may now have more incentive to consider moving.

Most attractive to them would be low-tax states such as Texas, which has spent more than a half-billion dollars over the last decade convincing companies that relocating is better for their bottom line. Texas, Florida or Nevada — already among the fastest-growing states — now have another carrot to woo wealthy individuals.

But some experts call the idea of millionaires moving for lower taxes a myth. A study published last year by Stanford University professor Cristobal Young found less migration among millionaires than the general population, with about 12,000 people with incomes of $1 million or more each year moving to a new state. It concluded that millionaire tax flight occurs, but only “at the margins.”

“It is a little bit more of an incentive to move from a higher-tax state to lower-tax states. But that incentive is already there,” said Larry Sherlock, a tax attorney at Chamberlain Hrdlicka in Houston. “Up until now they’ve decided that it’s worth the cost to live where they are.”