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Impact of the TCJA on Pennsylvania Taxpayers

This research brief uses newly released IRS tax data to examine how the Tax Cuts and Jobs Act of 2017 impacted Pennsylvania federal income taxpayers. The analysis finds that tax law changes likely reduced federal income taxes by roughly $8.5 to $9.0 billion. 

This research brief was originally posted on October 2 but was updated and reposted on October 13 so that refundable tax credits and certain miscellaneous taxes (AMT and net investment tax) are reflected in average tax rate and estimated tax cut computations. Previously, those amounts were itemized separately.

 

Tags: federal, income, taxes, tcja

Impact of the tcja on Pennsylvania Taxpayers

This research brief uses newly released IRS tax data to examine how the Tax Cuts and Jobs Act of 2017 impacted Pennsylvania federal income taxpayers. The analysis finds that tax law changes likely reduced federal income taxes by roughly $8.5 to $9.0 billion.  This research brief was originally posted on October 2 but was updated and reposted on October 13 so that refundable tax credits and certain miscellaneous taxes (AMT and net investment tax) are reflected in average tax rate and estimated tax cut computations. Previously, those amounts were itemized separately.  

10/13/2020

Tax Cut and Jobs Act Update- August 2018

In response to a legislative request, the IFO submitted a letter that discusses the impact of the federal Tax Cut and Jobs Act (tcja) of 2017 on Pennsylvania General Fund tax revenues and the economy.

08/24/2018

Smetters_Presentation_Full.pdf

Not Bigger? Industry Scenario 2018 2023 2027 2040 All industries Current law 21.18 23.53 22.95 21.93 TCJA 9.16 17.33 18.88 16.06 Penn Wharton Budget Model 24 We project that static ETR’s will by Industry Industry Scenario 2018 2023 2027 2040 All industries Current law 21.18 23.53 22.95 21.93 TCJA 9.16 17.33 18.88 16.06 Accommodation and food services Current law 15.13 16.29 15.41

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RB-2020-10-Impact_of_TCJA_on_PA_Taxpayers.pdf

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law. The act made significant changes to the federal individual income and corporate net income tax codes for tax year 2018 compared to amounts paid in the prior tax year. Significant tax code changes enacted by the TCJA include the following:  Eliminated personal exemptions and nearly doubled the standard deduction.  Changed applicable tax rates to 10%

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Revenue-Proposal-Analysis-2020-04.pdf

based on their analysis of 2018 tax returns after passage of the federal Tax Cuts and Jobs Act (TCJA). DOR observed that 62 percent of firms antici- pating a higher tax liability due to the TCJA increased their March and June estimated payments by 26 percent overall. According to a DOR memorandum transmitted to the House Appropriations Committee

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Revenue-Estimate-2019-05.pdf

For 2018, the U.S. GDP data reflect the impact of the federal Tax Cuts and Jobs Act (TCJA) of 2017, but the impact is less noticeable for Pennsylvania. However, the tax law change did manifest itself through higher sales tax shifting from tax year (TY) 2017 to 2018 to take advantage of lower tax rates under the federal TCJA, federal tax base expansion and strong baseline corporate profits growth for TY 2018.  Non-motor vehicle SUT collections are expected to

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Official-Revenue-Estimate-2019-06.pdf

For 2018, the U.S. GDP data reflect the impact of the federal Tax Cuts and Jobs Act (TCJA) of 2017, but the impact is less noticeable for Pennsylvania. However, the tax law change did manifest itself through higher sales tax shifting from tax year (TY) 2017 into 2018 to take advantage of lower tax rates under the federal TCJA, federal tax base expansion and strong baseline corporate profits growth for TY 2018.  Non-motor vehicle SUT collections are expected to

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Official-Revenue-Estimate-2018-06.pdf

into 2018 partly due to the federal income tax reduction enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. (See Table 1.1.) The forecast projects that:  Real GDP (real gross domestic product, excludes inflation) will increase by For future years, growth rates will likely return to long-run trends because the main impact of the TCJA will have been phased-in, and although the level of economic output will be higher, the act will have a much smaller

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Revenue-Estimate-2019-05-Presentation.pdf

static conformity Michigan 39.7% 2.1% 16.8% rolling conformity Massachusetts 58.6% 6.7% 43.5% static pre-TCJA conf Note: Growth rates compare collections for March and April 2019 to 2018. Sources: Various state agency websites. Conformity status Other Notes from FY 2018-19 Not all revenue gains are carried forward  Income shifting, gaming expansion, consumer behavior (TCJA) Other factors break positive to boost revenues  Federal Reserve does not increase rates (talk of rate reduction)  Temporary

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Initial-Revenue-Estimate-2018-05.pdf

into 2018 partly due to the federal income tax reductions enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. (See Table 1.1.) The forecast projects that:  Real GDP (real gross domestic product, excludes inflation) will increase by For future years, growth rates will likely return to long-run trends because the main impact of the TCJA will have been phased-in, and although the level of economic output will be higher, the act will have a much smaller

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CNIT-Rate-Cut-2018-04.pdf

cut over time, workers and consumers could also benefit. In the recent debate regarding the Tax Cut and Jobs Act (TCJA) of 2017, the following studies or papers were cited. All incidence figures refer to the assumed long‐run incidence of Cuts and Jobs Act,” Tax Foundation, Special Report No. 241 (December 2017) for an itemization of dynamic effects from the TCJA of 2017. The Tax Foundation uses estimates at the high end of the range. Other models use estimates that are

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Revenue_Estimate_Performance_2023_08.pdf

tax year 2017 in response to the large federal corporate rate cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. The CNIT overprediction error (-$193 million) was offset by underpredictions for SUT ($141 million) and PIT ($118 million and CNIT ($323 million). The unexpected increase in SUT revenues was due to stronger than anticipated consumer spending from the TCJA of 2017 and the taxation of internet sales via Act 43 of 2017. Corporate net income tax revenues exceeded forecast

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Revenue-Estimate-Performance_2022_10.pdf

tax year 2017 in response to the large federal corporate rate cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. The CNIT overprediction error (-$193 million) was offset by underpredictions for SUT ($141 million) and PIT ($118 million and CNIT ($323 million). The unexpected increase in SUT revenues was due to stronger than anticipated consumer spending from the TCJA of 2017 and the taxation of internet sales via Act 43 of 2017. Corporate net income tax revenues exceeded forecast

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Revenue-Estimate-Performance-2021-09.pdf

to the large federal corporate Revenue Estimate Performance | Page 3 rate cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. The CNIT overprediction error (-$193 million) was offset by underpredictions for SUT ($141 million) and PIT ($118 million and CNIT ($323 million). The unexpected increase in SUT revenues was due to stronger than anticipated consumer spending from the TCJA of 2017 and the taxation of internet sales via Act 43 of 2017. Corporate net income tax revenues exceeded forecast

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Revenue-Estimate-Performance-2020-09.pdf

large Revenue Estimate Performance | Page 3 federal corporate rate cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. The CNIT overprediction error (-$193 million) was offset by underpredictions for SUT ($141 million) and PIT ($118 million). Other revenue 323 million). The unexpected increase in SUT revenues was due to stronger than anticipated consumer spending from the TCJA of 2017 and the taxation of internet sales via Act 43 of 2017. Corporate net income tax revenues exceeded forecast due to

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Revenue-Estimate-Performance-2019-07.pdf

2017 in response to the large federal corporate rate cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. The CNIT overprediction error (-$193 million) was offset by underpredictions for SUT ($141 million) and PIT ($118 million). Other revenue 323 million). The unexpected increase in SUT revenues was due to stronger than anticipated consumer spending from the TCJA of 2017 and the taxation of internet sales via Act 43 of 2017. Corporate net income tax revenues exceeded forecast due to

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Monthly_Economic_Update_September_2020.pdf

week in 2019 and high-propensity business applications are 11.6% higher than 2019. New IRS Data Reveal Impact of TCJA on PA Taxpayers The IRS released state-level data for tax year 2018 that reveal the significant impact of the federal Tax Cuts and Jobs Act (TCJA) of 2017 on Pennsylvania residents that filed a federal income tax return. Major provisions of the act include: lower tax

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IFO_Testimony_Feb2018.pdf

briefly discuss recent economic and revenue trends, as well the potential impact of the federal Tax Cuts and Jobs Act (TCJA). Revenue Update Through January, the IFO revenue estimate is holding up well, and actual revenues are up roughly $190 million response will be immediate, while others believe there will be a six to nine-month lag. The second way the TCJA will impact revenues is through the corporate tax rate cut. This impact is much less clear because it is not

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TCJA-Update-August-2018.pdf

to samples of federal income tax returns and have performed simulations that provide insights into the potential impact of the TCJA on the federal income tax remitted by Pennsylvania residents. For example, the U.S. Joint Committee on Taxation estimates that the TCJ A will reduce total federal income taxes by $189 billion for federal fiscal year (FFY) 2018- 19, while the UPenn

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State_Tax_Comparison_2020_11.pdf

for qualified recipients enrolled under the Affordable Care Act. Largely due to the Tax Cuts and Jobs Act (TCJA) of 2017, the ratio of federal income tax to personal income for Pennsylvania residents declined from 8.75 percent (2017) to 7 included because those payments are not income taxes. 17 For a more detailed analysis, see “Impact of the TCJA on PA Taxpayers,” Independent Fiscal Office (October 2020). Tax Comparison Study Page 17 Table 14 displays amounts for state debt outstanding at

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Revenue_Proposal_Analysis_2021_04.pdf

of payments based on their analysis of 2018 tax returns after passage of the federal Tax Cuts and Jobs Act (TCJA), as discussed in a memo transmitted to the House Appropriations Committee (February 28, 2020). The DOR observed that 62% of firms anticipating a higher tax liability due to the TCJA increased March and June estimated payments by 26% overall. The 26% increase in estimated payments was used to apportion the

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REU-2019-12.pdf

the implementation of the cap on state and local tax (SALT) deductions under the federal Tax Cuts and Jobs Act (TCJA), taxpayers had an incentive to pay their last PIT quarterly payment for the current tax year in December (in advance January due date). It is unclear whether the December shortfall is related to adjusted taxpayer behavior in response to the TCJA changes or a true shortfall. Withholding payments also fell short for the month (-$2.2 million), while annual payments came

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Presentation-2018-06-PICPA.pdf

IFO. June.12.2018 8 FY 2017-18 Revenue Forecast June.12.2018 9 Corporate Income: multiple revenue impacts.  TCJA of 2017: rate reduction and base broadening.  Elimination of $5 million NOL cap.  Tax Bulletin 2017-02 eliminates estimated payment for 2018 up +15.2%. Sales-Use: consistent strength since November.  Good holiday season and impact of TCJA.  Business spending likely helps (~one-third of tax base). FY 2017-18 Revenue Themes June.12.2018 10 Two

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PICPA Presentation_ June 11, 2019.pdf

static conformity Michigan 39.7% 2.1% 16.8% rolling conformity Massachusetts 58.6% 6.7% 43.5% static pre-TCJA conf Note: Growth rates compare collections for March and April 2019 to 2018. Sources: Various state agency websites. Conformity status 1,427 $1,493 $66 Underprediction $312 Stronger Internet Revenues (permanent) $165 Mix of Vehicle Purchases (unclear) $50 Stronger Effect TCJA of 2017 (temporary) $25 Strong Consumer Confidence (unclear) $73 Note: Dollar amounts are in millions. Sales and Use Tax Base

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ITEP-Presentation-11-14-2019.pdf

paid < 3%.  Eight-year revenue loss from this gap: $126 billion The Future of State Corporate Income Taxes Post-TCJA: ???  New territorial tax system with international anti-avoidance measures. Effectiveness unclear.  Federal collections plummeting (until they’re not) post-TCJA  Hard to know how much is temporary/permanent  Similar problems at state level. Can observe collections, but hard

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Initial_Revenue_Update_May_2023_Final.pdf

extend surge into 2023 | modest contraction assumed ▪ 2022 non-financial corporate domestic profits highest share of GDP since 1968 ▪ 2017 TCJA amortization change adds +$300 million to CNIT for FY 22-23 Non-motor vehicle SUT robust growth continues | decline assumed 0% (79%) Total Growth 1.3% (100%) Alternate View 2 Policy Changes CNIT Rate Base Changes -$180m (-0.4%) 2017 TCJA Amortization -$160m (-0.4%) End Student Loan Moratorium* -$150m (-0.3%) Total Policy Impact -$490m (-1.1%) Adjusted Growth Rate

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Initial_Revenue_Estimate_Presentation_May_2023_Final.pdf

extend surge into 2023 | modest contraction assumed ▪ 2022 non-financial corporate domestic profits highest share of GDP since 1968 ▪ 2017 TCJA amortization change adds +$300 million to CNIT for FY 22-23 Non-motor vehicle SUT robust growth continues | decline assumed 0% (79%) Total Growth 1.3% (100%) Alternate View 2 Policy Changes CNIT Rate Base Changes -$180m (-0.4%) 2017 TCJA Amortization -$160m (-0.4%) End Student Loan Moratorium* -$150m (-0.3%) Total Policy Impact -$490m (-1.1%) Adjusted Growth Rate

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Five_Year_Outlook_2019.pdf

impact revenues include:  CNIT revenues have been significantly impacted by the federal Tax Cuts and Jobs Act (TCJA). Income shifting in response to the Act provided an artificial boost to FY 2018-19 revenues, but reported profits are expected to will impact revenues over the forecast horizon:  Income shifting in response to the passage of the federal TCJA provided an artificial boost to FY 2018-19 CNIT revenues, which grew 18.0 percent from the prior year. As a result

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Roundtable_Jan_2024_Final.pdf

Fiscal policy is unsustainable (Oct 2023) $509 billion deficit 1 st quarter of FFY 2024 Dec 2025: expiration of many TCJA provisions Federal Reserve Number and timing of rate cuts Ongoing pace of Quantitative Tightening Reduced liquidity from depletion of reserves

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Revenue-Estimate-Performance-2018-07.pdf

2017 in response to the large federal corporate rate cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. The CNIT overprediction error (-$193 million) was offset by underpredictions for SUT ($141 million) and PIT ($118 million). Other revenue

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Presentation-Initial-Revenue-Estimate-2018-05.pdf

Outlook, various years. May.01.2018 11 FY 2017-18 Revenue Forecast May.01.2018 12 Corporate Income: impact from TCJA 2017.  Lowers federal rate from 35% to 21%.  Firms shift taxable income out of 2017. Personal Income: broad

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Presentation-2019-3-1-EPLC.pdf

IFO Presentation  Executive Summary | Crucial Assumptions | Recession Risk  Demographics: a contracting workforce  Economics: modest 2018 gains from TCJA, strong labor market  Revenues and Expenditures: one-time measures dominate  State and Local Revenues: property tax, impact fee

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IFO_Hearing_Materials_Feb_22_2022.pdf

rate reflects the highest tax bracket for states with a graduated corporate income tax. 3 Reflects conformity with the 2017 TCJA, which limited the NOL carryforward (CF) deduction to 80% of taxable income and removed the carryback (CB) provision for tax

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Five_Year_Outlook_2020_Presentation_Final.pdf

loans  Payroll tax shift to 2021 and 2022  Possible shifting in anticipation of tax rate increase (e.g., TCJA of 2017) Long-term factors  Corporations have likely increased relative profitability (i.e., margins)  Cost saving measures, reduced

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Economic_and_Revenue_Update_2021.pdf

graduated corporate income tax. 3.Does not reflect conformity with 2020 federal CARES Act provisions. Reflects conformity with the 2017 TCJA, which limited the NOL carryforward (CF) deduction to 80% of taxable income and removed the carryback (CB) provision for tax

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2024_Mid_Year_Update_Final.pdf

Fiscal policy is unsustainable (Oct 2023) $509 billion deficit 1 st quarter of FFY 2024 Dec 2025: expiration of many TCJA provisions Federal Reserve Number and timing of rate cuts Ongoing pace of Quantitative Tightening Reduced liquidity from depletion of reserves

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