PROVIDENCE – The federal Tax Cuts and Jobs Act of 2017 is likely to create benefits for some municipalities and burdens for others, mainly through changes in tax revenues, which, in turn, could have an impact on factors like a region’s credit quality and real estate markets.
Standard & Poor’s Global Ratings conducted a study of the tax law, and concluded that the most likely change would be to tax revenues. S&P added, “Overall, it’s more likely to exacerbate pressure on local governments already grappling with revenue loss than provide upside potential for others.”
A category identified as “at risk” from the tax law included Bristol and Kent counties in Rhode Island and Nantucket County in Massachusetts. No Rhode Island or Massachusetts counties were named as “counties that might benefit.”
A significant portion of taxpayers will see an increased tax burden under the law in counties with high effective state and local tax rates and a high ratio of itemizers to total tax filers. These are places where governments will most likely see adverse effects from the tax law.
The analysis named three factors for governments to consider in the wake of the new tax law:
In high-tax jurisdictions, the tax act may dampen incentives to buy higher-priced houses, or at least decrease demand for houses where the combination of state and local taxes paid by a taxpayer exceeds the new $10,000 cap. This could limit home price growth and lead to more tax appeals.
Second, residents who feel squeezed under the new tax may not support tax rate increases, especially if they can no longer deduct it from their federal taxable income.
Third, in places where sales or use taxes are a bigger factor in supporting government operations, people with less (or more) cash on hand could alter tax collections, based on more or less spending.
The survey used data from the Internal Revenue Service and the U.S. Census Bureau’s American Community Survey.
Mary Lhowe is a PBN contributing writer.