Federal Tex Reform and the Taxation of Urban Residents

Abstract

This article uses a microsimulation model to demonstrate that suburban residents reap larger benefits from Tax Reform than do urban residents. Tax Reform may also lead many states to reduce their reliance on income taxes. Although the direct incentives to reduce local taxes in central cities are weak, Tax Reform is likely to create stronger incentives for state governments to reduce spending, especially on programs for poor people. By creating differential price effects across different types of jurisdictions, state governments will face pressure to reduce and reallocate state aid away from central cities.