Governing Magazine: Expiring Tax Deductions Could Mean Less Revenue for States
States with no income taxes could see reduced consumer spending in 2014 if a federal tax deduction is allowed to expire.
Currently Americans can deduct certain taxes paid to state and local governments (including taxes on real estate, property, and income or sales) from their federal tax returns. The deduction for state and local sales taxes is among 55 temporary federal tax provisions scheduled to expire at the end of 2013 and losing the exemption could have an adverse impact on states, according to an issue brief published by The Pew Charitable Trusts this month. In 2011, about 11 million filers claimed a total of $17 billion in state and local sales tax deductions.
Eliminating this option for filers will likely reduce their refunds, translating into less disposable income to spend on state and local economies. Changes to these deductions could “have an indirect impact on revenues,” the brief says. If the federal tax exemption is not extended, state policy makers will likely have to make a decision about how to address the shortfall, said Anne Stauffer, director of Pew’s Fiscal Federalism Initiative.
“My sense is the response would be that policy makers have to make decisions on whether they are going to change their tax codes or fiscal policies based on what they think the impact will be,” she said.
Read the full article at governing.com.