Policy Briefs
Rewarding Work Through State Earned Income Tax Credits
September 14, 2016 • By Aidan Davis, Lisa Christensen Gee, Meg Wiehe
The Earned Income Tax Credit (EITC) is a policy designed to bolster the earnings of low-wage workers and offset some of the taxes they pay, providing the opportunity for struggling families to step up and out of poverty toward meaningful economic security. The federal EITC has kept millions of Americans out of poverty since its enactment in the mid-1970s. Over the past several decades, the effectiveness of the EITC has been magnified as many states have enacted and later expanded their own credits.
Options for a Less Regressive Sales Tax
September 14, 2016 • By Carl Davis
Sales taxes are one of the most important revenue sources for state and local governments; however, they are also among the most unfair taxes, falling more heavily on low- and middle-income households. Therefore, it is important that policymakers nationwide find ways to make sales taxes more equitable while preserving this important source of funding for public services. This policy brief discusses two approaches to a less regressive sales tax: broad-based exemptions and targeted sales tax credits.
How State Tax Changes Affect Your Federal Taxes: A Primer on the “Federal Offset”
August 22, 2016 • By Dylan Grundman O'Neill
Read this brief in PDF here. State lawmakers frequently make claims about how proposed tax changes would affect taxpayers at different income levels. Yet too many lawmakers routinely ignore one important consequence of their tax reform proposals: the effect of state tax changes on their constituents’ federal income tax bills. Wealthier taxpayers in particular can […]
Indexing Income Taxes for Inflation: Why It Matters
August 22, 2016 • By Dylan Grundman O'Neill
Read brief in PDF here. All of us experience the effects of inflation as the price of the goods and services we buy gradually goes up over time. Fortunately, as the cost of living goes up, our incomes often tend to rise as well in order to keep pace. But many state tax systems are […]
The Folly of State Capital Gains Tax Cuts
August 17, 2016 • By Dylan Grundman O'Neill, Meg Wiehe
Read the brief in a PDF here. The federal tax system treats income from capital gains more favorably than income from work. A number of state tax systems do as well, offering tax breaks for profits realized from local investments and, in some instances, from investments around the world. As states struggle to cope with […]
Why Sales Taxes Should Apply to Services
July 27, 2016 • By Carl Davis
Read this Policy Brief in PDF here. General sales taxes are an important revenue source for state governments, accounting for close to one-third of state tax collections nationwide. But most state sales taxes have a damaging structural flaw: they typically apply to most sales of goods, such as books and computers, but exempt most services […]
Sales Tax Holidays: An Ineffective Alternative to Real Sales Tax Reform
July 11, 2016 • By Meg Wiehe
This brief was updated July 2018 Read this Policy Brief in PDF here. Sales taxes are an important revenue source, composing close to half of all state tax revenues.[1] But sales taxes are also inherently regressive because the lower a family’s income, the more the family must spend on goods and services subject to the […]
State Corporate Tax Disclosure: Why It’s Needed
June 29, 2016 • By Lisa Christensen Gee
Few state tax trends are as striking as the rapid decline of state corporate income tax revenues. As recently as 1986, state corporate income taxes equaled 0.5 percent of nationwide Gross State Product (GSP) (a measure of statewide economic activity). But in fiscal year 2013 (the last year for which data are available), state and local corporate income taxes were just 0.33 percent of nationwide GSP--representing a decline of over 30 percent.
How Long Has it Been Since Your State Raised Its Gas Tax?
June 28, 2016 • By Carl Davis
An updated version of this report has been published with data through July 1, 2017. Read this Policy Brief in PDF form Many states’ transportation budgets are in disarray, in part because they are trying to cover the rising cost of asphalt, machinery, and other construction materials with a gasoline tax rate that is rarely […]
State Treatment of Itemized Deductions
June 2, 2016 • By Dylan Grundman O'Neill, Meg Wiehe
Read this Policy Brief in PDF Form Map of State Treatment of Itemized Deductions Thirty-one states and the District of Columbia allow a group of income tax breaks known as “itemized deductions.” [1] Itemized deductions are designed to help defray a wide variety of personal expenditures that affect a taxpayer’s ability to pay taxes, including charitable […]
Rewarding Work Through State Earned Income Tax Credits
February 11, 2016 • By Aidan Davis, Lisa Christensen Gee, Meg Wiehe
See the 2016 Updated Brief Here Read the brief in a PDF here. that time, the EITC has been improved to lift and keep more working families out of poverty. The most recent improvements enhanced the credit for families with three or more children and for married couples. First enacted temporarily as part of the […]
How Long Has it Been Since Your State Raised Its Gas Tax?
February 5, 2016 • By Carl Davis
Many states' transportation budgets are in disarray, in part because they are trying to cover the rising cost of asphalt, machinery, and other construction materials with a gasoline tax rate that is rarely increased. A growing number of states have recognized the problem with this approach and have switched to a "variable-rate" gas tax under which the tax rate tends to rise over time alongside either inflation or gas prices. A majority of Americans live in a state where the gas tax is automatically adjusted in this way.
Most Americans Live in States with Variable-Rate Gas Taxes
February 5, 2016 • By Carl Davis
The federal government and many states are seeing shortfalls in their transportation budgets in part because the gasoline taxes they use to generate those funds are poorly designed. Thirty-one states and the federal government levy "fixed-rate" gas taxes where the tax rate does not change even as the cost of infrastructure materials inevitably increases over time. The federal government's 18.4 cent gas tax, for example, has not increased in over 22 years. And twenty states have gone a decade or more without a gas tax increase.
A Primer on State Rainy Day Funds
October 20, 2015 • By Aidan Davis
Read the Report in PDF Form An individual savings account can serve as an emergency reserve – a financial cushion to sustain yourself in the event of an emergency. “Rainy day” funds are much like individual saving accounts, but on a statewide scale. Lawmakers use rainy day funds to set aside state tax revenue during […]
Rewarding Work Through State Earned Income Tax Credits
September 17, 2015 • By Aidan Davis, Lisa Christensen Gee, Meg Wiehe
Despite some economic gains in recent years, the number of Americans living in poverty has held steady over the past four years. At the same time, wages for working families have remained stagnant and more than half of the jobs created by the economic recovery since 2010 were low-paying, mostly in the food services, retail, and employment services industries. Our country's growing class of low-wage workers often faces a dual challenge as they struggle to make ends meet. First, wages are too low and growing too slowly - despite recent productivity gains - to keep up with the rising cost…
Sales Tax Holidays: An Ineffective Alternative to Real Sales Tax Reform
July 22, 2015 • By Lisa Christensen Gee
Lawmakers in many states have enacted "sales tax holidays" (at least 17 states will hold them in 2015), to provide a temporary break on paying the tax on purchases of clothing, computers and other items. While these holidays may seem to lessen the regressive impacts of the sales tax, their benefits are minimal. This policy brief examines the many problems associated with sales tax holidays and concludes that they have more political than policy benefits.
Pay-Per-Mile Tax is Only a Partial Fix
June 24, 2015 • By Carl Davis
Read this report in PDF form Introduction For years, academics and transportation experts have been discussing the possibility of taxing drivers for each mile they travel on the nation’s roads. This “vehicle miles traveled tax” (VMT tax) could either supplement or replace the existing gas tax as the primary method of funding transportation infrastructure. To […]
State Tax Preferences for Elderly Taxpayers
March 23, 2015 • By Meg Wiehe
State governments provide a wide array of tax breaks for their elderly residents. Almost every state that levies an income tax now allows some form of income tax exemption or credit for citizens over age 65 that is unavailable to non-elderly taxpayers. And most states provide special property tax breaks to the elderly. Unfortunately, too many of these breaks are poorly-targeted, unsustainable, and unfair. This policy brief surveys federal and state approaches to reducing taxes for older adults and suggests options for designing less costly and better targeted tax breaks for elderly taxpayers.
Options for Progressive Sales Tax Relief
July 30, 2014 • By Meg Wiehe
See the 2016 Updated Brief Here Read the Policy Brief in PDF Form Sales taxes are one of the most important revenue sources for state and local governments—and are also one of the most unfair taxes. In recent years, policymakers nationwide have struggled to find ways of making sales taxes more equitable while preserving this […]
State Gasoline Taxes: Built to Fail, But Fixable
May 20, 2014 • By Carl Davis
An updated version of this brief was published on February 9, 2017. Read this report in pdf. Every state levies taxes on gasoline and diesel fuel, usually just called “gas taxes.” These taxes are an important source of state revenue—particularly for transportation—but their poor design has resulted in sluggish revenue growth that fails to […]
The Federal Gas Tax: Long Overdue for Reform
May 20, 2014 • By Carl Davis
The federal gas tax is a critical source of funding for the nation's transportation system, but its design is fundamentally flawed. In recent years, the consequences of those flaws have become increasingly obvious, as the federal government has struggled to fund a 21st century transportation network with a gas tax that has predictably failed to keep pace with the nation's growing infrastructure needs. This ITEP Policy Brief explains how the federal gas tax works, its importance as a transportation revenue source, the problems confronting the gas tax, and the reforms that are needed to overcome these problems.
A Closer Look at TABOR (Taxpayer Bill of Rights)
August 19, 2013 • By ITEP Staff
Colorado has become infamous for its Taxpayer Bill of Rights, or TABOR, a constitutional amendment restricting growth in revenue collections to an arbitrary "population-plus-inflation" formula. Although TABOR has had significant negative effects on Colorado's finances, similar proposals have surfaced in at least 30 states over the past decade. None of these proposals were approved, and in five states they were placed directly on a state-wide ballot where they were rejected by voters. Even in Colorado itself, citizens voted to suspend TABOR for five years in an effort to allow the s
Tax Principles: Building Blocks of A Sound Tax System
December 1, 2012 • By Meg Wiehe
The fundamental purpose of taxation is to raise the revenue necessary to fund public services. While there are many ways to achieve this goal, a widely agreed-upon set of principles should be used to evaluate tax systems. This policy brief provides a basic overview of five commonly cited principles of sound tax policy: equity, adequacy, simplicity, exportability, and neutrality.
Corporate Income Tax Apportionment and the “Single Sales Factor”
August 1, 2012 • By Meg Wiehe
One of the thorniest problems in administering state corporate income taxes is how to distribute the profits of multi-state corporations among the states in which they operate. Ultimately, each corporation's profits should be taxed in their entirety, but some corporations pay no tax at all on a portion of their profits. This problem has emerged, in part, due to recent state efforts to manipulate the "apportionment rules" that distribute such profits. This policy brief explains how apportionment rules work and assesses the effectiveness of special apportionment rules such as "single sales factor" as economic development tools.
State Estate and Inheritance Taxes
August 1, 2012 • By Meg Wiehe
For much of the last century, estate and inheritance taxes have played an important role in helping states to adequately fund public services in a way that exempts middle- and low income taxpayers.
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