A new report from the Tax Foundation finds that states that don’t have a refundable state income tax exemption, such as Michigan, Kansas, Oklahoma and Wisconsin, still benefit from lower tax rates than other states.
But even states that do have an exemption, like New York and California, have higher taxes on a flat income tax basis than states that have no such deduction.
The Tax Foundation estimates that states with a refund have an average of 6.4% lower income taxes than states without one.
The tax credits are often a key part of lowering tax rates.
For example, a 10% refund could reduce your taxable income by about $4,000 a year, and a 5% refund can reduce it by $2,400 a year.
States with an exemption often also have lower overall federal tax burdens.
For instance, New York has the fifth-highest overall tax burden, at 12.3% of income, but its effective tax rate is just 0.9%.
Texas and Georgia are next at 12% and 12.9% respectively, and New York’s effective tax burden is just 1.3%.
“The Tax Foundation’s analysis shows that states without a refund could save money by using the tax credits to lower their tax burden,” said Michael McDonald, director of Tax Policy Analysis for the Tax Policy Center, a nonpartisan research group.
“This suggests that the current tax code could have a substantial impact on how states choose to distribute their tax burdens.”
New York Gov.
Andrew Cuomo, a Democrat, recently announced plans to reduce the state’s state income taxes by 25% next year.
He has said he would use the money to reduce state income inequality, including a 25% reduction in the state income exemption for state workers and families.
The state income deduction for state residents, known as the personal exemption, is $12,000.
If a taxpayer earns more than $125,000, they can deduct a portion of their income from their state income.
The exemption is available to taxpayers who file federal income tax returns.
The $12-million exemption will be available for the first time next year, when a $1,000 personal exemption will expire.
The report found that the tax credit has helped states reduce income inequality by lowering the overall tax bill.
The average annual tax reduction for a single taxpayer in 2020 was 0.7%.
For a married couple, the average tax reduction was 0 .9%.
The Tax Policy Institute, which is nonpartisan, estimates that a 15% refund would have reduced state income income taxes for the top 20% of taxpayers by about 7% in 2020, or about $3,200.
In contrast, the Tax Reform Institute, a Washington, D.C.-based nonprofit, found that a 10.5% refund in 2020 would have resulted in a 7.9%, or $1.5 million, tax reduction, a savings of $3.3 million, or 15%.
The report also showed that states have reduced their overall federal taxes by reducing the tax burden on businesses, which account for about 40% of federal income taxes.
Tax Reform estimated that the refund would result in a $6,200 tax cut for households earning less than $200,000 in 2020.
The deduction reduces the tax bill for businesses by more than half, the report found.
Tax reform advocates have pushed to reduce those tax cuts.
The Senate recently passed a bill to reduce personal income tax rates, which would lower the standard deduction and the mortgage interest deduction to 10% and 10.25%, respectively, in 2020 and 2023.
Republicans have blocked the bill, arguing it would not add to the federal deficit.