The tax system in the United States is divided into federal, state, and local taxes. The tax reform promoted by President Trump and passed by Congress only includes federal taxes and does not involve state and local taxes. This is because state and local governments are not subordinate to the federal government, and the federal government has no authority over the affairs of state and local governments; state and local taxes are determined by the legislatures of each state and locality.
It should be noted that although the tax reform only involves federal taxes, it still has an impact on state and local taxes, especially in terms of personal income tax. Most state and local governments reference federal personal income tax as the basis for calculating their own personal income taxes. Therefore, changes in federal personal income tax will naturally affect state and local personal income tax revenues, with the extent of the impact depending on the circumstances of each state.
For example, there are seven states in the United States that do not have a state personal income tax. Therefore, the federal tax reform has no impact on the personal income tax in these seven states; while in the other 30 states and the District of Columbia, personal income tax is calculated based on the federal personal income's "Adjusted Gross Income". Changes in "Adjusted Gross Income" will directly affect the state personal income tax.
For instance, after the tax reform, if Zhang San's federal personal income "Adjusted Gross Income" changes from $100,000 to $80,000, then the basis for calculating his state personal income tax will also change from $100,000 to $80,000. If the tax rate remains unchanged, his tax liability will decrease; conversely, it will increase.
For the federal government, personal income and payroll taxes are the primary sources of government revenue. According to estimates by the Congressional Budget Office (CBO), federal tax revenue in 2017 was approximately $3.377 trillion, of which $2.8 trillion came from personal taxes, accounting for about 83% of total revenue; in addition, corporate income taxes, social security and Medicare payroll taxes, excise taxes on tobacco and alcohol, estate and gift taxes, tariffs, and others are also important components of government revenue.
For state and local governments, while personal income tax is an important source of revenue, it is not the primary source, which is different from the federal government. In state and local government revenues, property taxes and sales/excise taxes are the major sources.
According to statistics from the Tax Foundation, in 2010, property taxes accounted for 35%, sales taxes for 34%, personal income taxes for 20%, corporate income taxes for 3%, and vehicle license taxes for 2% of all state and local government revenues in the United States. This shows that property taxes and sales taxes each account for one-third of state and local government revenues, while personal income taxes only account for one-fifth.
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