The recent fiscal downturn forced cash-strapped, tax-averse state lawmakers to seek unconventional revenue-raising alternatives, for additional revenue-raising opportunities outside of the income, sales and property taxes that form the backbone of most state tax systems. One of the most popular alternatives to those major revenue sources is state sponsored gambling. As this policy brief points out, however, gambling revenues are rarely as lucrative, or as long-lasting, as supporters claim.
Publications
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brief October 1, 2011 Uncertain Benefits, Hidden Costs: The Perils of State-Sponsored Gambling
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report September 22, 2011 State Tax Codes As Poverty Fighting Tools (2011)
This report presents a comprehensive view of anti-poverty tax policy decisions made in the states in 2011 and offers recommendations every state should consider to help families rise out of… -
brief September 1, 2011 Rewarding Work Through Earned Income Tax Credits
Low-wage workers often face a dual challenge as they struggle to make ends meet. In many instances, the wages they earn are insufficient to encourage additional hours of work or long-term attachment to the labor force. At the same time, most state and local tax systems impose greater responsibilities on poor families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve meaningful economic security. The Earned Income Tax Credit (EITC) is designed to help low-wage workers meet both those challenges. This policy brief explains how the credit works at the federal level and what policymakers can do to build upon it at the state level.
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brief September 1, 2011 State Income Taxes and Older Adults
State governments provide a wide array of tax breaks for their elderly residents. Almost every state levying an income tax now sensibly allows some form of income tax exemption or credit for its over-65 citizens that is unavailable to non-elderly taxpayers. But many states have enacted poorly-targeted, unnecessarily expensive elderly income tax breaks that make state tax systems less sustainable and less fair. This policy brief surveys approaches to elderly income tax relief and suggests options for reforming state tax breaks for seniors.
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brief September 1, 2011 State Treatment of Itemized Deductions
In 2011, thirty one states and the District of Columbia allow a group of income tax breaks known as “itemized deductions.” Itemized deductions are designed to help defray a wide variety of personal expenditures that affect a taxpayer’s ability to pay taxes, including charitable contributions, extraordinary medical expenses, mortgage interest payments and state and local taxes. But, these deductions cost states billions of dollars a year while providing little or no benefit to the middle- and low-income families hit hardest by the current economic downturn. This policy brief explains itemized deductions and explores options for reforming these upside down tax breaks at the state level.
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brief September 1, 2011 Property Tax Circuit Breakers
State lawmakers seeking to enact residential property tax relief have two broad options: across-the-board tax cuts for taxpayers at all income levels, such as a homestead exemption or a tax cap, and targeted tax breaks that are given only to particular groups of low-income and middle-income taxpayers. One increasingly popular type of targeted property tax relief program is called a “circuit breaker” because it protects taxpayers from a property tax “overload” just like an electric circuit breaker: when a property tax bill exceeds a certain percentage of a taxpayer’s income, the circuit breaker reduces property taxes in excess of this “overload” level. This policy brief surveys the advantages and disadvantages of the circuit breaker approach to property tax relief.
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brief September 1, 2011 The Folly of State Capital Gains Tax Cuts
For over twenty years now, the federal tax system has treated income from capital gains more favorably than income from work. A significant 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 short- and long-term budget deficits and to devise strategies to promote economic development in a sustainable fashion, policymakers should assess whether preserving such tax preferences is in the public interest. This policy brief explains state capital gain taxation and examines the flaws in state capital gain tax cuts.
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brief September 1, 2011 Split Roll Property Taxes
In the past half century, state lawmakers have explored a wide variety of approaches to scaling back property taxes. One such approach is the split roll property tax, also known as a classified property tax. Unlike a regular property tax system which taxes all types of real property at the same rate, a split roll property tax applies different tax rates to different types of property. This policy brief looks at the advantages and disadvantages of the split roll approach.
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brief September 1, 2011 Reducing the Cost of Child Care Through Income Tax Credits
Low- and middle-income working parents frequently spend a significant portion of their income on child care. As an increasing number of single parents take jobs, and as the number of two-earner families continues to rise, child care expenses are an unavoidable and increasingly unaffordable expense for these families. This policy brief looks at one way of making child care more affordable: the dependent care tax credit offered by the federal government and many states.
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brief September 1, 2011 Property Tax Homestead Exemptions
State lawmakers seeking to enact residential property tax relief have two broad options: across-the-board tax cuts for taxpayers at all income levels, and targeted tax breaks. More than 40 states have chosen to achieve across-the-board tax relief by providing a “homestead exemption.” This policy brief explains the workings of the homestead exemption and evaluates its strengths and weaknesses as a property tax relief strategy.
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brief September 1, 2011 Capping Property Taxes: A Primer
In response to what anti-tax advocates have branded as “out of control” property taxes, a number of states have decided to make use of tax “caps” to restrict the growth of local property taxes. California’s Proposition 13 tax cap, approved in 1978, inspired numerous other states to enact similarly ill-conceived property tax caps. These caps can come in many forms, but all are poorly-targeted and costly. In most cases, these caps amount to a state-mandated restriction on the ability of local governments to raise revenue. While state lawmakers get to take credit for cutting taxes, local lawmakers are the ones forced to make difficult decisions regarding which services to cut. There are three main types of property tax caps in use around the country: caps on property tax rates, caps on assessed value growth, and caps on overall property tax revenue growth.
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brief September 1, 2011 Taxes and Economic Development 101
One of the main economic goals of most state policymakers is, quite sensibly, to attract businesses to their state. But, all too often, these policymakers have been encouraged to think that tax cuts make the best bait. A growing body of literature reminds us that taxes themselves create public infrastructure that spurs investment and improves the quality of life for businesses and workers alike. Communities that illustrate a strong commitment to public institutions like good schools, well-built transportation systems, and quality police and fire protection will ultimately have an advantage in attracting new business investment. This policy brief looks at the complicated role taxes play in economic development and discusses why low-tax strategies are not effective.
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brief September 1, 2011 Fighting Back: Accountable Economic Development Strategies
Even though there is little evidence that cutting taxes and reducing public investments actually spurs economic development, lawmakers across the country have been persuaded to give tax breaks to companies in hopes of encouraging a thriving economic climate in their state. Some lawmakers are wising up to the idea that subsidies don’t work. But for policymakers who insist on offering incentives, there are some important, simple, and concrete steps that can be taken to ensure that subsidies aren’t allowed to go unchecked. This policy brief offers guidance on best practices for alternatives to providing blanket tax breaks.
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brief September 1, 2011 Examining Economic Development Research
State and local lawmakers face enormous pressure to attract and retain business investment–and all too often, anti-tax advocates will argue that tax cuts are the best approach to economic development, usually armed with “research” studies that conclude slashing taxes is necessary for economic development. But all too often, these studies are based on shoddy assumptions that make their results unreliable. This policy brief offers guidance on how to critically examine studies that claim that taxes must be cut in order to spur economic development.
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report August 15, 2011 Texas is a Low Tax State, But Not for Families Living in Poverty
Data from the Census Bureau shows that overall, Texas could be considered a “low tax state.” However, families living near or below the poverty line generally do not experience Texas… -
report August 14, 2011 Washington is a Low Tax State, But Not for Families Living in Poverty
Data from the Census Bureau shows that overall, Washington could be considered a “low tax state.” However, families living near or below the poverty line generally do not experience Washington… -
report August 14, 2011 Tennessee is a Low Tax State, But Not for Families Living in Poverty
Data from the Census Bureau shows that overall, Tennessee could be considered a “low tax state.” However, families living near or below the poverty line generally do not experience Tennessee… -
report August 14, 2011 Florida is a Low Tax State, But Not for Families Living in Poverty
Data from the Census Bureau shows that overall, Florida could be considered a “low tax state.” However, families living near or below the poverty line generally do not experience Florida… -
report August 14, 2011 Arizona is a Low Tax State, But Not for Families Living in Poverty
Data from the Census Bureau shows that overall, Arizona could be considered a “low tax state.” However, families living near or below the poverty line generally do not experience Arizona… -
brief August 1, 2011 Why States That Offer the Deduction for Federal Income Taxes Paid Get it Wrong
As states continue to grapple with the impact of the most recent economic downturn, the budget revenue outlook for many states remains bleak. In this context, states must find ways to generate additional revenue without increasing the tax load on individuals and families struggling to make ends meet. For six states–Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon–one straightforward approach would be to repeal the deduction for federal income taxes paid. Repealing the deduction would help these states reduce their budgetary gaps and make their tax systems less unfair. This policy brief explains how the deduction for federal income taxes works and assesses its impact on state budgets and tax fairness.
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brief August 1, 2011 How State Personal Income Taxes Work
The personal income tax can be–and usually is–the fairest of the main revenue sources relied on by state and local governments. When properly structured, it ensures that wealthier taxpayers pay their fair share and provides lower tax rates on middle-income families. The personal income tax can be used to offset regressive sales, excise and property taxes. This policy brief explains the basic workings of the income tax.
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brief August 1, 2011 Indexing Income Taxes for Inflation: Why It Matters
Most of us don’t need to be reminded about inflation. We experience it every day, as the price of the goods and services we buy gradually goes up over time. As the cost of living goes up, our incomes generally go up too, partially because of inflation. But many state tax systems are not designed to take account of inflation. The result is that income taxes often grow faster than incomes–even though lawmakers haven’t actually passed any laws to make this happen. Some lawmakers have responded to this “hidden tax hike” by indexing their income taxes for inflation. This policy brief explains how indexing works and evaluates its impact on tax adequacy and fairness.
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brief August 1, 2011 How State Tax Changes Affect Your Federal Taxes: A Primer on the “Federal Offset”
State lawmakers frequently make claims about how proposed tax changes would affect taxpayers at different income levels. Yet these lawmakers routinely ignore one important consequence of their tax reform proposals: the effect of state tax changes on their constituents’ federal income taxes. Wealthier taxpayers can use the federal income tax to partially offset their state and local income and property taxes. This “federal offset” has important implications for how state tax changes affect people. This policy brief explains this important but often-forgotten link between state and federal taxes.
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brief August 1, 2011 How Property Taxes Work
The property tax is the oldest major revenue source for state and local governments. At the beginning of the twentieth century, property taxes represented more than eighty percent of state and local tax revenue. While this share has diminished over time as states have introduced sales and income taxes, the property tax remains an important mechanism for funding education and other local services. This policy brief discusses why property is taxed and how property taxes are calculated.
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brief August 1, 2011 Income Tax Simplification: How to Achieve It
Simplicity is generally seen as a virtue in state tax systems. Simplicity makes it easier for taxpayers to understand (and to pay) their taxes, and makes it easier for tax administrators to collect taxes fairly. In recent years, state lawmakers have proposed a wide variety of income tax changes under the guise of simplification. Yet not all of these purported tax simplification measures are well-designed to achieve it–and some measures would unnecessarily reduce the fairness of the income tax. This policy brief evaluates options for making state income taxes less complicated.