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The federal tax overhaul cut taxes for millions of American families and businesses. But the law also had an unintended effect: raising the state-tax bite in nearly every state that has an income tax.
The Tax Cuts and Jobs Act, which President Trump signed into law in December, did not directly affect state budgets. It cut federal tax rates, but also made other changes that mean more income will be subject to taxation. Because most states use federal definitions of income and have not adjusted their own rates, the federal changes will have big consequences for both state budgets and taxpayers.
Residents of the majority of states would experience an unlegislated tax increase, said Jared Walczak, an analyst with the Tax Foundation, a conservative think tank.
In Minnesota, the state estimates that residents could pay more than $400 million in additional state taxes in the next fiscal year because of the new federal law. That has set off a fight over how to respond.
The federal tax overhaul, which eliminated or capped several deductions and exemptions, effectively broadened what counts as income for some families. Previously, for example, a married couple with three children earning $70,000 might have been taxed on only about $36,000 of that income, according to the Tax Policy Center, a research group. The tax law, however, eliminated the so-called personal exemption and made other changes, which could increase this family's taxable income to about $46,000.
The Minnesota Department of Revenue estimates that if the state tax code incorporates the federal change in calculating taxable income, 870,000 Minnesota families will pay more for the 2018 tax year, by an average of $489 per person.
That's your windfall, a tax increase on large families, Mr. Auxier said.
[SUB][/SUB]
The Tax Cuts and Jobs Act, which President Trump signed into law in December, did not directly affect state budgets. It cut federal tax rates, but also made other changes that mean more income will be subject to taxation. Because most states use federal definitions of income and have not adjusted their own rates, the federal changes will have big consequences for both state budgets and taxpayers.
Residents of the majority of states would experience an unlegislated tax increase, said Jared Walczak, an analyst with the Tax Foundation, a conservative think tank.
In Minnesota, the state estimates that residents could pay more than $400 million in additional state taxes in the next fiscal year because of the new federal law. That has set off a fight over how to respond.
The federal tax overhaul, which eliminated or capped several deductions and exemptions, effectively broadened what counts as income for some families. Previously, for example, a married couple with three children earning $70,000 might have been taxed on only about $36,000 of that income, according to the Tax Policy Center, a research group. The tax law, however, eliminated the so-called personal exemption and made other changes, which could increase this family's taxable income to about $46,000.
The Minnesota Department of Revenue estimates that if the state tax code incorporates the federal change in calculating taxable income, 870,000 Minnesota families will pay more for the 2018 tax year, by an average of $489 per person.
That's your windfall, a tax increase on large families, Mr. Auxier said.
[SUB][/SUB]
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