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Does Deductibility Influence Local Taxation?

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  • Robert P. Inman

Abstract

Recent proposals to reform the U.S. tax code all contain significant reforms of the cufrent provision allowing for the deductibility of state and local taxes.This paper examines the effect of deductibility reform on the revenue decisions of the largest U.S. cities. The analysis of eight alternative reforms concludes:(1) total taxes change very little in the long-run, falling at most by 13% and, for many cities, even rising slightly; (2) fees and license revenue (predominantly a tax on firms) generally fall, in some cases by 30% or more; (3) the net effect on total revenues (tax plus fees) is generally small, never declininq by more than 12% even with full loss of deductibility; and (4) policies to offset city revenue losses are effective in neutralizing the negative effects of deductibility reform.

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  • Robert P. Inman, 1985. "Does Deductibility Influence Local Taxation?," NBER Working Papers 1714, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1714
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    1. Feldstein, Martin S & Metcalf, Gilbert E, 1987. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 710-736, August.
    2. Holtz-Eakin, Douglas & Rosen, Harvey, 1990. "Federal deductibility and local property tax rates," Journal of Urban Economics, Elsevier, vol. 27(3), pages 269-284, May.
    3. Douglas Holtz-Eakin & Harvey S . Rosen, 1988. "Tax Deductibility and Municipal Budget Structure," NBER Chapters, in: Fiscal Federalism: Quantitative Studies, pages 107-136, National Bureau of Economic Research, Inc.
    4. Bahl, Roy W. & Sjoquist, David L., 1990. "The State and Local Fiscal Outlook: What Have We Learned and Where Are We Headed?," National Tax Journal, National Tax Association, vol. 43(3), pages 321-42, September.
    5. Andrew Reschovsky & Howard Chernick, 1989. "Federal Tex Reform and the Taxation of Urban Residents," Public Finance Review, , vol. 17(2), pages 123-157, April.
    6. Roberto Dell’Anno & Jorge Martinez-Vazquez, 2013. "A Behavioral Local Public Finance Perspective on the Renter’s Illusion Hypothesis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1303, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    7. Daniel R. Feenberg & Harvey S. Rosen, 1985. "The Deductibility of State and Local Taxes: Impact Effects by State and Income Class," NBER Working Papers 1768, National Bureau of Economic Research, Inc.
    8. Robert P. Inman, 1989. "The Local Decision to Tax: Evidence from Large U.S. Cities," NBER Working Papers 2921, National Bureau of Economic Research, Inc.
    9. Dick Netzer, 1985. "The effect of tax simplification on state and local governments," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 29, pages 222-258.
    10. Loeb, Susanna & Socias, Miguel, 2004. "Federal contributions to high-income school districts: the use of tax deductions for funding K-12 education," Economics of Education Review, Elsevier, vol. 23(1), pages 85-94, February.
    11. Alberto Sole Olle, 1998. "The effects of tax deductibility on the mix of property taxes and use charges: an empirical analysis of the spanish case," Working Papers in Economics 41, Universitat de Barcelona. Espai de Recerca en Economia.

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