Federal Deductibility and Local Property Tax Rates

31 Pages Posted: 1 Jan 2002 Last revised: 19 Feb 2021

See all articles by Douglas Holtz-Eakin

Douglas Holtz-Eakin

Syracuse University; National Bureau of Economic Research (NBER)

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 1987

Abstract

In current discussions of tax reform in the United States, there is considerable controversy concerning the effects of allowing individuals to deduct state and local taxes when calculating their federal income tax liability. Recent econometric work has suggested that federal deductibility of state and local taxes has raised the proportion of these taxes -- especially property taxes -- in local budgets. This paper lends additional support to these earlier findings by showing that one channel through which deductibility leads to higher local property tax revenues is by increasing the rate of local property taxation. Specifically, we find that if deductibility were eliminated, the mean property tax rate in our sample of 82 communities would fall by 0.00715 ($7.15 per thousand dollars of assessed property), or 21.1 percent of the mean tax rate.

Suggested Citation

Holtz-Eakin, Douglas and Rosen, Harvey S., Federal Deductibility and Local Property Tax Rates (November 1987). NBER Working Paper No. w2427, Available at SSRN: https://ssrn.com/abstract=227106

Douglas Holtz-Eakin (Contact Author)

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Harvey S. Rosen

Princeton University - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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