States Most Affected by Tax Reform

President Donald Trump signed sweeping tax code changes into law in 2017, leaving Republicans excited and Democrats less than thrilled. Trump and his supporters see the new code as a win for both businesses and individuals. It lowers the corporate income tax from 35 to 21 percent, and is projected to increase overall after-tax income in every quintile of taxpayers.

Some people aren’t confident that the new rates will be beneficial for all, though. For example, according to WalletHub’s Tax Survey, 69 percent of consumers say that they believe the new tax reform will benefit corporations more than consumers, and 67 percent believe it will favor the rich over the middle class.

While the changes to the tax law won’t affect most Americans’ 2018 filings for the 2017 fiscal year, 2019 will be a much different story. Citizens of certain states will benefit more than others, too. In order to find out where taxpayers will get the best breaks, WalletHub compared the 50 states and the District of Columbia based on the state-specific average tax change for low, middle and high-income families. Below you’ll find the full ranking, insight from a panel of experts and a full description of our methodology.

Where do you stand on the new tax policy? See how your ideas compare to other respondents in WalletHub’s Tax Fairness Survey.

Main Findings

Overall States Most Affected by Tax Reform

*1 = Benefiting the most

Red vs Blue States

Ask the Experts

As tax codes are long and complex, many Americans are left wondering exactly how the latest changes will affect them. For more insight into how the law will change taxes going forward, we asked a panel of experts for their thoughts on the following key questions:

1. Is the new tax code designed to be more beneficial to some states than others?
2. Who will be the most negatively affected by the new tax code in the long run?
3. Is the new tax code as much a “loophole haven” as the last one? If so, how and why?
4. Does the new tax code make preparing tax returns more or less complex? Would the average person spend more or less time/money to prepare their tax returns?

Ask the Experts

Nicholas Robinson
Director of Accountancy and Assistant Chair of Accountancy and Law in the School of Business at Eastern Illinois University
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Lance E. Rothenberg
Tax Attorney and Of Counsel with Tenenbaum Law, P.C.
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H. David Rosenbloom
James S. Eustice Visiting Professor of Practice and Taxation and Director of the International Tax Program at New York University School of Law
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Betty J. Williams
Managing Shareholder at Williams & Associates
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David S. Neufeld
Attorney at Law at the Law Office of David Neufeld
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Benjamin Goldburd
Partner at Goldburd McCone LLP
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Methodology

In order to identify the states that would be most affected by the tax code according to one’s family income group, WalletHub generated estimates of the state-specific average tax change at three income levels — low ($25,000), medium ($50,000) and high ($150,000) — in each of the 50 U.S. states and the District of Columbia. We did so using data from the Institute on Taxation & Economic Policy's 2018 report, which published estimates of average tax change at seven points in the state-specific income distribution.

As we were interested in comparing average tax changes for families at the same income level across states, we fit a regression model to estimate the relationship between income and the average tax change for each state and the District of Columbia. We used log transformations to improve model fit and used this model to generate predicted average tax change at the income levels examined.