Email, Alan M. Cole, economist, the Tax Foundation, Dec. 23, 2014

4:13 p.m.

The marginal rate on the deduction can’t really be calculated from the data we have here; the ideal calculation would be to go through every Texan’s tax forms for every year and see what it would look like with and without the deduction,  but that’s obviously impossible. Marginal rates are affected by all sorts of unusual things: not just brackets, but other things like the personal exemption phaseout and the Pease limitation on itemized deductions. Something in the high 20’s sounds reasonable but any figure chosen is just an approximation.

A good reason to believe the high 20’s is a good estimate is that the 25% tax bracket is where a lot of people end up. For singles in 2013, that bracket ran from about $36,000 to about $88,000. People whose incomes fall in that kind of range have a 25% marginal rate. However, it is worthwhile to remember that the Texans who took this deduction are the ones that chose to list itemized deductions rather than taking the standard deduction. Itemizers tend to have higher incomes than people who take the standard deduction, so their marginal rates are also higher under our progressive income tax structure. A lot of itemizers fall into the 28% or 33% bracket.

You are right that the IRS hasn’t yet published figures for 2013. Consider that people who filed for an extension on their 2013 forms only just turned those in a couple of months ago. They’ll publish the precise data on 2013 sometime next year.  Your calculation does follow the methodology I’d use to evaluate the size of the tax break, and the results look reasonable.

Best,

Alan

From: Selby, Gardner (CMG-Austin) [mailto:wgselby@statesman.com]

Sent: Tuesday, December 23, 2014 4:44 PM

To: Alan M. Cole

I hope you can weigh this:

IRS figures indicate the TX sales tax deductions for nine years (2004 through 2012) totaled $35,675,871,000 (my math). I think this breaks out to $9.6 billion in money not sent to Uncle Sam if you assume a 27 percent marginal tax rate or $8.9 billion at a 25 percent rate (is either one more reasonable a rate, and why?).

However, this result leaves out 2013, for which there don’t appear to be IRS figures posted. (Am I right?)

Assume Texans in 2013 deducted $4,314,678,000 in sales tax (my figure based on averaging what they deducted each year in 2010-12), a 10-year estimate of money not sent to the federal government would be $10.8 billion at the 27 percent marginal rate or $9.998 billion at the 25 percent rate.

All of this make sense? Any tweaks?

g.