Tag: TaxVox

Searching for Supply-Side Effects of The Tax Cuts and Jobs Act

Mary Pat Campbell

Link: https://www.taxpolicycenter.org/taxvox/searching-supply-side-effects-tax-cuts-and-jobs-act

Excerpt:

Did it work? In a new paper with my Tax Policy Center colleague Claire Haldeman, we conclude that, consistent with these goals, TCJA reduced marginal effective tax rates (METRs) on new investment and reduced the differences in METRs across asset types, financing methods, and organizational forms.

But it had little impact on business investment through 2019 (where we stopped the analysis, to avoid confounding TCJA effects with those of the COVID-related shutdowns that ensued). Investment growth increased after 2017, but several factors suggest that this was not a reaction to the TCJA’s changes in effective tax rates.

Author(s): William G. Gale

Publication Date: 6 July 2021

Publication Site: TaxVox at Tax Policy Center

State Pass-Through Entity Taxes Let Some Residents Avoid the SALT Cap at No Cost to The States

Mary Pat Campbell

Link: https://www.taxpolicycenter.org/taxvox/state-pass-through-entity-taxes-let-some-residents-avoid-salt-cap-no-cost-states

Graphic:

Excerpt:

But PTE taxes create inequities based on type of income. For example, because these states now favor pass-through income over wages, a partner in a law firm can be effectively exempt from the SALT cap while an executive assistant or associate in the same firm remains subject to the deduction limitation. A doctor who is an employee of a corporation is barred from fully deducting state and local income taxes while a partner in a medical practice making the same income is exempt from the federal cap for these taxes.  

Because the rules differ across states, businesses need to consider where partners live and where business income is generated. For example, non-resident partners might not benefit from the credits in their home state. Like New York, some states of residence allow credits against the taxes these partners owe from other states. But that isn’t always the case.

Keep in mind that these PTE taxes may be just a temporary fix. Congress may consider changes to the SALT cap in coming legislation. And the cap, along with all other individual tax changes in the TCJA, is scheduled to expire at the end of 2025.

Author(s): Kim S. Rueben

Publication Date: 24 June 2021

Publication Site: TaxVox at Tax Policy Center