The White House and Congressional Republicans talked about gearing up to overhaul America’s famously complex tax code and “make taxes simpler, fairer, and lower for hard-working American families.” Now, we have a plan — two, actually, from both the House and Senate. Unfortunately, average Americans might not have much to celebrate. That’s the conclusion of a report from the Institute on Taxation and Economic Policy, which looked at the original Trump plan.
Earlier proposals from Trump’s camp to streamline tax brackets, eliminate the alternative minimum tax, and get rid of many itemized deductions would result in $4.8 trillion in total tax savings through 2027. But 61.4% of all those savings would go to the top 1% of taxpayers and 14% of middle-income taxpayers would end up paying more in taxes, not less. Experts looking at the plan from House Republicans show similar numbers and another glaring feature.
A tax cut for the richest Americans?
Now that we have a Congressional plan, analyses are finding that outcomes aren’t much different. Aside from blowing a $1.5 trillion shortfall in the budget over the next decade, the plan will, at its core, act as a tax increase on blue states and redistribute it to red states.
We’ll focus on a key element of the Republican strategy here: Ridding the tax code of a couple key deductions. Namely, property tax deductions, and state income tax deductions. There are many other elements at play, but these are two very common deductions that, if scuttled, could act as a significant item on your tax bill.
Which states will lose and benefit the most? Let’s take a look at the biggest losers first.
The tax plan’s losers (unless you’re in the 1%)
Average Americans in the following seven states stand to lose the most from proposed changes to the tax code.
- Property taxes are high in Connecticut — among the top 10 in the nation.
Taxpayers in Connecticut stand to lose under the Republican tax plan. With a standard statewide property tax rate of 1.83% (plus local taxes), the inability to write that expense off can be difficult to grapple with. Add in that a huge percentage of Connecticut households have student debt (also not deductible under the Republican plan) and Connecticut taxpayers will end up getting slammed.
Next: Another blue state in the Pacific Northwest
- Taxpayers in Oregon are like those in Connecticut — screwed.
There’s a big upside to living in Oregon: You don’t need to pay sales tax on your purchases. Unfortunately, that’s offset by other taxes, namely property and income taxes. For the majority of people, that’s going to be 9% — an amount that would no longer be deductible on your federal return.
- The state charges upward of 5% for income tax.
When it comes to Massachusetts, taxpayers can probably expect to see some extra mass on their tax bill. Like Connecticut, Massachusetts’ New England neighbor, the state charges an income tax of more than 5%. Couple that with a highly-educated (and thus bogged down with loans) populace, and high property values? It could get ugly.
Next: Another blue state on the Eastern seaboard
- Residents of Baltimore City, with its high property taxes, should be worried.
Marylanders won’t be spared when it comes to the Republican tax bill. It’s another blue, relatively high-tax state, and a lot of those taxes could soon become non-deductible on federal returns. State income tax maxes out at 5.75% for earnings above $250,000. That means “middle class” households (Republicans consider anyone earning less than $450,000 to be middle class) will feel the sting.
Next: The home of Tony Soprano and family
3. New Jersey
- Just because Tony Soprano could get away with tax evasion doesn’t mean you will too.
New Jersey just elected a fresh Democratic governor, but that won’t do anything to stop the Republicans from passing their tax bill. Like the other states on our list so far, New Jersey relies on property and income taxes to fund local government. And if those are no longer deductible on federal returns, people will be paying higher, not lower, effective bills.
Next: One of the bluest states out there
2. New York
- Income tax rates in New York start at more than 6%.
If Republicans and Trump wanted to nail blue states, this is certainly the way to do it. And it doesn’t get much bluer than New York. New York has fairly high income tax rates (on top of sales tax) and varying property tax rates. But given the high value of real estate in and around New York City, that can lead to a pretty high write-off (which could soon disappear).
Next: The biggest, bluest stronghold in the nation
- More people may experience negative outcomes in California than in any other state.
Like New York, California is very blue. And it’s also a place in which a lot of moderately wealthy people live — including many members of the 1%. But it’s not those folks who will get burned — it’s those dutifully paying California’s property taxes and income taxes (which top out at more than 13%). All those with student loans will also see their federal tax bill increase.
Next: The winning states
The tax reform winners
The following seven states would get a greater share of tax reform savings relative to their total population.
7. West Virginia
- It was hard to find a state that swung harder for Trump than West Virginia.
It’s not that West Virginia residents don’t get screwed under the new tax plan. Many will. It’s simply a matter of having less to lose. West Virginia isn’t nearly as wealthy of a state as New York or California, and property values are significantly lower. In fact, West Virginia has some of the lowest property taxes in the nation, meaning the lost deductions are significantly smaller.
Next: The home of Mount Rushmore
6. South Dakota
- South Dakota residents, like those in West Virginia, don’t get bit nearly as hard by the tax proposal as people in blue states.
People who hate taxes generally love South Dakota. It’s one of the least-taxed states in the country, and again, that means that there are fewer deductions on federal returns. That means there’s less to lose if Republicans push their bill through, especially since there’s no personal income tax to deduct.
Next: The state that “Arkan saw”
- Like South Dakota, Tennessee has (nearly) no income tax.
And when you don’t have an income tax, you don’t get to deduct that from your federal return. So, you’re less affected by the proposed tax plan than someone in New York or California. Likewise, home values in most of Tennessee aren’t that high, with a few notable exceptions in places like Nashville.
Next: The other Dakota
4. North Dakota
- Unlike its sister state, North Dakota does have an income tax.
If there’s one thing that North Dakota has in abundance, it’s open space. That means that property is fairly cheap compared to the (blue) crowded coastlines, and smaller write-offs on federal tax returns. The state does have an income tax, however, it’s very low; between 1% and 3% for the majority of taxpayers.
Next: A conservative Southern state
- Like North Dakota, Mississippi has an income tax, but it, too, is fairly low.
In Mississippi, you’ll pay an income tax rate of 3%, 4%, or 5%, depending on your income level. But Mississippi is also one of those states in which a relatively small amount of money is written-off due to the state income tax deduction. Also, property taxes are typically low — in some areas, they’re well below national and state averages.
- Property owners in Louisiana benefit from some of the lowest property tax rates in the country.
If it isn’t plainly obvious by now, it’s not that states like Louisiana don’t lose under the Republican tax plan. It’s that they lose less than others. And they mostly lose less because fewer of the state’s residents depend on the deductions the new tax bill would kill. Like the other states we’ve discussed, Louisiana’s property and income taxes are lower than their blue-state counterparts. As such, Louisiana is in a better position than California or New York.
Next: The final state on our list.
- The state of Wyoming has no income tax and very low property taxes.
If you really hate taxes, Wyoming is the place to be. The state doesn’t have an income tax, meaning your paychecks are fatter, and its property tax rates are among the lowest in the country. As such, there isn’t a whole lot of deductions being made on federal returns. And of course, that means that the Republican tax bill is less damaging to Wyoming residents than those in other states.
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