Does Deductibility Influence Local Taxation?

58 Pages Posted: 18 Jul 2000 Last revised: 10 Mar 2021

See all articles by Robert P. Inman

Robert P. Inman

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: October 1985

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.

Suggested Citation

Inman, Robert P., Does Deductibility Influence Local Taxation? (October 1985). NBER Working Paper No. w1714, Available at SSRN: https://ssrn.com/abstract=228047

Robert P. Inman (Contact Author)

University of Pennsylvania - Finance Department ( email )

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