Federal Tax Reform's Effects on States

Last week, I had the opportunity to sit down with three experts in tax policy and discuss how recent changes to the federal tax code will affect the states.

Joined by Jason Fichtner, Scott Drenkard, and Andrew Schaufele, I was well positioned to find answers to questions like “why would state taxes change just because of federal reform?” and “what do these changes mean for everyday tax payers?”

Here’s what they had to say:

  • Most experts agree that basic goals of tax reform should involve broadening the tax base and lowering tax rates.
  • State tax codes, for simplicity’s sake (and due to some historical quirks), often “conform” to the federal tax code. That can result in strange, unintended consequences, like a tax change that cuts your federal taxes, but increases your state tax bill.
  • Many states (like Maryland) are likely to receive more revenue as a result of this effect, and policymakers are trying to decide how best to handle the change.
  • Some states with high taxes used to receive implicit subsidies because of the ability of taxpayers to deduct some state and local taxes from their federal taxes. That deduction changed as part of the recent federal reform, which could significantly change the tax burden for some residents of a small number of states (like New York and California).

The good news is that all of these changes give state policymakers an opportunity to take another look at their tax codes and make long overdue reforms. To hear recommendations about which reforms make the most sense, listen to the podcast and check out the additional resources Scott, Jason, and Andy were kind enough to provide!

As an aside, I also no longer feel bad about using Turbo Tax, having learned that plenty of tax policy experts still use accountants or tax preparation software for their own returns!

If there are more topics you’d like to hear me discuss with policy experts, or other specific issues you’d like to hear addressed, don’t hesitate to email me directly with your suggestions at [email protected].

Mercatus Center
The Hidden Cost of Federal Tax Policy
Economic Perspectives: State and Local Tax Policy 

Tax Foundation
State Revenue Implications and Reform Opportunities Following Federal Tax Reform

Comptroller of Maryland
Effects of Federal Tax Law Revisions on the State of Maryland