An Economist’s View: Biden, media failing us on soaring lumber prices
This op ed appeared in the Duluth News Tribune on June 21, 2021 In March, the median price of a home sale in Duluth hit $217,000, up 14% from last…
The federal tax bill passed in December is already impacting tax policy at the state level. As Jared Walczak of the Tax Foundation writes,
Because state tax codes typically conform to many of the provisions of the federal tax code, the new federal law has broad-ranging implications for states. Many base-broadening provisions at the federal level flow through to states, which may experience higher collections due to some combination of the repeal of the personal exemption, the loss or curtailment of certain itemized deductions, the limitation of the interest deduction, and other changes. How these provisions affect revenues varies from state to state, but most states can expect higher collections because of federal tax reform.
Lawmakers in Georgia and Idaho decided to give that money back, and then some, in the form of rate reductions and other changes to their own tax codes.
- Adopts a 0.475 percentage point across-the-board individual income tax rate cut;
- Incorporates the new, higher federal standard deduction ($12,000 for individual filers);
- Follows the repeal of the personal and dependent exemptions;
- Creates a new $130 per child tax credit to offset the loss of the personal exemption; and
- Reduces the corporate income tax rate by 0.475 percent.
The bill represents a net tax cut of $104.5 million, as it provides $201.9 million in tax relief while assuming $97.4 million in additional revenue due to federal conformity. (See previous coverage here.) Another pending measure would increase the child tax credit to $205, which would cost an additional $25 million. The bill has passed the House and is now awaiting action in the Senate.
In Georgia, where federal tax reform is anticipated to increase state revenues by $5.2 billion over five years, Gov. Nathan Deal (R) signed state tax reform legislation which phases the top individual and corporate income tax rates from 6.0 to 5.5 percent by 2020 and doubles the standard deduction (to $4,600 for single filers). The bill carries a fiscal impact of about $5.5 billion over five years and thus, as with Idaho’s bill, represents a modest tax cut, going slightly beyond the new revenue anticipated from conformity. (See previous coverage here.)
The federal tax bill provides states with an additional revenue buffer. It also offers an incentive to compete for additional domestic investment expected under the new law. It is already proving to be a compelling impetus for state reform. These pressures are sure to be felt in Minnesota, as well.
John Phelan is an economist at the Center of the American Experiment.