How Will States React to the Federal Tax Reform?
Blue states and their residents are feeling blue in light of the federal Tax Cuts and Jobs Act. The main culprit is the new limit on the deduction for state and local taxes (SALT). The cap on the SALT deduction will lead to a greater increase in federal personal income taxes in blue states such as California, New York, New Jersey, Connecticut, Maryland, Massachusetts and Illinois than in red states because, on average, blue states have higher state income tax rates. But blue states are creatively contemplating ways around the federal tax law changes. The results promise to be interesting.