A Tax Cut May Carve Into the Budgets of 19 States
That cut, intended to spur the economy by encouraging businesses to spend more money on equipment, could end up costing 19 states as much as $5.3 billion in lost revenue over the next few years, according to the report, by the Center on Budget and Policy Priorities, a research organization based in Washington.The 19 states stand to lose money because they link their state tax laws to federal tax law. So the newly allowed federal tax deductions that businesses in those states take will lower their taxable incomes, which would in turn have the effect of driving down state corporate and income tax collections.The change could cost Illinois, North Carolina, Pennsylvania and other states hundreds of millions of dollars of lost revenue unless they decide to enact laws decoupling their state tax laws from the federal ones, the report said. When similar cuts have been passed before, it noted, many states have chosen to break with federal laws.But some states do not intend to do so this time. In Pennsylvania, which the report estimated could lose $833 million in revenues over the next few years, the state’s Department of Revenue announced last month that it had settled on a “business-friendly” interpretation of the law that could benefit as many as 117,000 corporate taxpayers.The department said the new policy would not affect Pennsylvania’s revenues in the long run because companies would simply be taking full deductions now, rather than spreading them out over several years. But this is a hard time for Pennsylvania to give large tax breaks up front: the state faces an estimated $4 billion deficit in the coming fiscal year.The unexpected tax change is just one example of how difficult it can be for states to perform one of their most important tasks: guessing how much money they will collect in the coming year, so they will know how much will be available to spend.
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