Heavy Tax Burdens Weigh Down Job Growth
The Tax Cuts and Jobs Act (TCJA) is expected to create 1.2 million jobs across the country in its first decade. I recently wrote about the ongoing benefits Pennsylvania is reaping thanks to federal tax reform, noting rising wages and record low unemployment.
Despite the economic boom generated by the TCJA, the act remains fairly unpopular among voters. Americans falsely believe that tax reform disproportionately benefited those with higher incomes at the expense of everyone else, but 90% of taxpayers across income groups benefited from federal tax reform.
This disconnect is more surprising when you consider change in itemized deductions.
For households here in the commonwealth, the State and Local Tax deduction (SALT) is particularly interesting. In high tax states like Pennsylvania, filers used to be able to deduct the amount they paid in state and local taxes on their federal returns. The TCJA capped the amount of this deduction at $10,000. For the roughly 1.8 million Pennsylvania filers with an average deduction of $11,426, this means that they feel more of the burden from their state and local tax regimes.
Chart: Average SALT Deduction for Pennsylvania
It’s no surprise then that low tax states are experiencing almost double the rate of job growth compared to high tax states like ours. In fact, because of Pennsylvania’s burdensome state tax structure, we’ve left at least 4,000 jobs on the table as employers and workers see tax benefits elsewhere.
Chart: Job Growth Rates Post TCJA
While the state has reaped massive benefits from federal tax reform, we could see even more gains if the state tax structure was more friendly to job creation. Moving forward, lawmakers need to reduce its tax burden in order to achieve the growth rates of other states.