State Policy
State taxes pay for essential public services, from education to health care. But the ideal design of a tax system is complicated. ITEP’s state policy resources offer insights into central issues, including the impact of state tax systems on individuals, families, and businesses. Its work also analyzes the sustainability of revenue sources over time.
ITEP's State Policy Research Priorities
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blog March 1, 2017 State Rundown 3/1: Will Tax Cut Proposals Be “In Like a Lion, Out Like A Lamb”?
Tax cuts have been proposed in many states already this year, but amid so much uncertainty, it remains to be seen how successful those efforts will be. This week saw… -
report March 1, 2017 Undocumented Immigrants’ State & Local Tax Contributions
Public debates over federal immigration reform, specifically around undocumented immigrants, often suffer from insufficient and inaccurate information about the tax contributions of undocumented immigrants, particularly at the state level. The truth is that undocumented immigrants living in the United States paybillions of dollars each year in state and local taxes. Further, these tax contributions would increase significantly if all undocumented immigrants currently living in the United States were granted a pathway to citizenship as part of comprehensive immigration reform. Or put in the reverse, if undocumented immigrants are deported in high numbers, state and local revenues could take a substantial hit.
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blog February 28, 2017 Return of the Moderate: A Kansas Force Awakens
Before the tea party wave of 2010 that brought Gov. Sam Brownback to power and inspired the disappointing “real life experiment” in tax policy, Kansas was primarily governed by a… -
blog February 28, 2017 What to Watch in the States: State-Federal Relationship Shifting
So far in this series on tax policy topics to watch in 2017, we’ve covered important state debates in areas such as attempts to weaken or eliminate progressive taxes and… -
blog February 27, 2017 States Should Require Combined Reporting of Corporate Income
An important aspect of a 21st century tax code is ensuring that corporate income taxes are easy for corporations to follow, but not easy for them to avoid. As our… -
blog February 24, 2017 Why, West Virginia, Why?
A recently introduced Senate Bill in West Virginia (SB 335) would ultimately eliminate the state’s personal and corporate income taxes, do away with the sales and use tax, and reduce… -
brief February 24, 2017 Combined Reporting of State Corporate Income Taxes: A Primer
Over the past several decades, state corporate income taxes have declined markedly. One of the factors contributing to this decline has been aggressive tax avoidance on the part of large, multi-state corporations, costing states billions of dollars. The most effective approach to combating corporate tax avoidance is combined reporting, a method of taxation currently employed in more than half of the states that tax corporate income. The two most recent states to enact combined reporting are Rhode Island in 2014 and Connecticut in 2015.
In several states, including Connecticut, Illinois, Massachusetts, Rhode Island, and Vermont, lawmakers adopted the policy after first carrying out in-depth studies of its potential effects. This policy brief explains how combined reporting works.
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blog February 23, 2017 State Rundown 2/23: Regressive Tax Proposals Multiplying
This week saw a nearly successful attempt to right the fiscal ship in Kansas; regressive tax proposals introduced in WestVirginia, Georgia, and Missouri; ongoing gas tax fights in Indiana, South… -
blog February 15, 2017 What to Watch in the States: Modernizing Sales Taxes for a 21st Century Economy
This is the fourth installment of our six-part series on 2017 state tax trends. The introduction to this series is available here. State lawmakers often find themselves looking for ways… -
blog February 15, 2017 State Rundown 2/15: Tax Overhauls Debated Around the Country
This week we are following a number of significant proposals being debated or introduced including reinstating the income tax in Alaska and eliminating the tax in West Virginia, establishing a… -
blog February 13, 2017 ‘IMPROVE’ Act Fails to Improve Tennessee’s Regressive Tax Code
Tennessee Gov. Bill Haslam’s proposal (dubbed the IMPROVE Act) to raise the state’s gas tax while cutting three other taxes would essentially be a tax cut for the state’s wealthiest… -
report February 9, 2017 State Gasoline Taxes: Built to Fail, But Fixable
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 keep pace with state infrastructure needs. This ITEP Policy Brief explains how state gas taxes work, their importance as a transportation revenue source, the problems confronting gas taxes, and the types of gas tax reforms that are needed to overcome these problems.
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blog February 8, 2017 Lawmakers Should Not Use Disproven Trickle-Down Myth to Ramrod Tax Cuts for the Rich
For more than four decades, supply-side ideologues have promoted the myth that tax cuts for the wealthy are self-financing and the benefits eventually trickle down to everyone else, despite real-life… -
blog February 8, 2017 State Rundown 2/8: Lessons of Kansas Tax-Cut Disaster Taking Hold in Kansas, Still Lost on Some in Other States
This week we bring news of Kansas lawmakers attempting to fix ill-advised tax cuts that have wreaked havoc on the state’s budget and schools, while their counterparts in Nebraska and… -
blog February 6, 2017 Dodging Tough Fiscal Decisions with State Tax Cut Triggers and Phase-Ins
The most challenging problem that tax-cutting state lawmakers face is dealing with the budgetary tradeoffs that tax cuts require. Should education spending be reduced? Should investments in infrastructure be halted?… -
blog February 2, 2017 What to Watch in the States: Gas Tax Hikes and Swaps
This is the second installment of our six part series on 2017 state tax trends. The introduction to this series is available here. State tax policy can be a divisive… -
blog February 2, 2017 What to Watch in the States: Further Attempts to Weaken or Eliminate Progressive Taxes
This is the third installment of our six-part series on 2017 state tax trends. The introduction to this series is available here. As we described last week, many states are… -
blog February 1, 2017 State Rundown 2/1: 2017 State Tax Debates Getting Real
This week’s Rundown brings news of tax cuts passed in Arkansas and advanced in Idaho, proposals to exempt feminine hygiene products from sales taxes in Nevada and Michigan, revenue shortfalls… -
blog January 30, 2017 And Then There Were Six: Amazon Expands Its Sales Tax Collection
UPDATE: After this post was published, Amazon announced that it will begin collecting sales tax in Oklahoma on March 1. This post has been updated to reflect this development. The… -
blog January 27, 2017 What to Watch in the States Series: Tax Policy 2017
Over the next few weeks we will be blogging about what we’re watching in state tax policy during 2017 legislative sessions. In this “What to Watch in the States” series,… -
blog January 26, 2017 A Visual Tour of Who Pays State & Local Taxes
While it can be hard to look away from the important federal policy debates occurring right now in Washington D.C., state lawmakers across the country will also be debating consequential… -
blog January 26, 2017 An Overview of State Tax Trends in 2017
Since the 2007-2009 economic crisis, rising income inequality and the role our public policies play in aiding or easing this trend have been an ongoing part of the public discourse.… -
report January 26, 2017 Fairness Matters: A Chart Book on Who Pays State and Local Taxes
When states shy away from personal income taxes in favor of higher sales and excise taxes, high-income taxpayers benefit at the expense of low- and moderate-income families who often face above-average tax rates to pick up the slack. This chart book demonstrates this basic reality by examining the distribution of taxes in states that have pursued these types of policies. Given the detrimental impact that regressive tax policies have on economic opportunity, income inequality, revenue adequacy, and long-run revenue sustainability, tax reform proponents should look to the least regressive, rather than most regressive, states in crafting their proposals.
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blog January 25, 2017 State Rundown 1/25: Revenue Shortfalls and How to Avoid Them
This week brings more news of states facing budget crunches, a new state looking to eliminate income taxes, and plans to raise gas taxes to fund transportation projects. Be sure… -
blog January 25, 2017 47 Years Later, Alaska Considers Playing Catch-Up with its Motor Fuel Tax
Alaska Gov. Bill Walker recently proposed tripling the gasoline and diesel tax rates paid by Alaska motorists to generate funding for the state’s infrastructure. In a different state, tripling the… -
report January 25, 2017 Alaska’s Motor Fuel Tax: A National and Historical Outlier
Alaska Gov. Bill Walker recently proposed tripling his state’s motor fuel tax rates.[1] While a variety of fuel types would be affected by this proposal, three-fourths (or $60 million) of the revenue raised each year would come from higher taxes on gasoline and diesel fuel–sometimes referred to as highway fuels–purchased by Alaska motorists.
Absent any national or historical context, tripling Alaska’s gasoline and diesel fuel tax rates may sound like a radical policy change. But an adjustment of this size is necessary because Alaska lawmakers have not updated the state’s basic highway fuel tax rate since May 1970–almost 47 years ago.[2] Because of this inaction, Alaska’s highway fuel tax has become an outlier when compared to other states’ tax rates, or when compared to Alaska’s own history.
This brief discusses four ways in which Alaska’s highway fuel tax is an outlier:
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ITEP Work in Action January 25, 2017 Gov. Hutchinson’s low-income tax plan: A good start, but needs work
Governor Asa Hutchinson’s new tax cut proposal includes a break, at long last, for some of the lowest income working families in our state. The bones of this plan are… -
ITEP Work in Action January 25, 2017 Statement on Governor Hutchinson’s Low-Income Tax Plan
The following is a statement from Rich Huddleston, executive director of Arkansas Advocates for Children and Families: Read more here -
ITEP Work in Action January 24, 2017 The Arizona Center for Economic Progress: Questions and Answers About Arizona’s State Budget and Taxes 2017
State budgets and taxes are the foundation for achieving our common priorities that will lead to more quality jobs, a strong economy, and thriving communities. This publication provides information and… -
blog January 18, 2017 Kansas State of the State: Worlds Apart
Back in December, Kansas Gov. Sam Brownback gave an interview with the Wall Street Journal and suggested President-elect Trump should follow his state’s example and cut taxes as well as… -
blog January 18, 2017 State Rundown 1/18: Revenue Woes Piling Up Faster Than Solutions
This week we continue to track revenue shortfalls, governors’ budget proposals, and other tax news around the country, finding most proposals to be focused on slashing taxes and reducing public… -
brief January 17, 2017 Most Americans Live in States with Variable-Rate Gas Taxes
The federal government and many states are unable to adequately maintain the nation’s transportation infrastructure in part because the gasoline taxes intended to fund infrastructure projects are often poorly designed. Thirty states and the federal government levy fixed-rate gas taxes where the tax rate does not change even when the cost of infrastructure materials rises or when drivers transition toward more fuel-efficient vehicles and pay less in gas tax. The federal government’s 18.4 cent gas tax, for example, has not increased in over twenty-three years. Likewise, more than twenty states have waited a decade or more since last raising their own gas tax rates.
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brief January 17, 2017 How Long Has It Been Since Your State Raised Its Gas Tax?
Many state governments are struggling to repair and expand their transportation infrastructure because they are attempting to cover the rising cost of asphalt, machinery, and other construction materials with fixed-rate gasoline taxes that are rarely increased.
The chart accompanying this brief shows (as of January 1, 2017) the number of years that have elapsed since each state’s gas tax was last increased.
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blog January 11, 2017 State Rundown 1/11: State Legislative Sessions Kick Off Amid Uncertainty
This week brings still more states looking for solutions to revenue shortfalls, multiple governors’ State of The State addresses, important reading on counter-transparency and local-preemption efforts, and more. — Meg… -
blog January 4, 2017 State Rundown 1/4: Revenue Shortfalls, Gas Tax Changes Dominate Early Debates
This week we bring you updates on major revenue shortfalls looming in Nebraska, Oklahoma, and Pennsylvania, as well as gas tax changes taking effect in some states and being debated in… -
brief December 21, 2016 State Estate and Inheritance Taxes
For much of the last century, estate and inheritance taxes have played an important role in fostering strong communities by promoting equality of opportunity and helping states adequately fund public services. While many of the taxes levied by state and local governments fall most heavily on low-income families, only the very wealthy pay estate and inheritance taxes.
Changes in the federal estate tax in recent years, however, caused states to reevaluate the structure of their estate and inheritance taxes. Unfortunately, the trend of late among states has tended toward weakening or completely eliminating them. But this need not be so; states can restore or improve their estate and inheritance taxes as a vital progressive revenue source to support services and communities while also protecting the source from the whims of federal lawmakers. This policy brief explains state inheritance and estate taxes, discusses recent state trends and policy decisions that have impacted the taxes, and explores how states can adopt or strengthen these important components of a progressive tax structure.
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brief November 28, 2016 State Tax Preferences for Elderly Taxpayers
State governments provide a wide array of tax breaks for their elderly residents. Almost every state that levies an income tax allows some form of income tax exemption or credit for citizens over age 65 that is unavailable to non-elderly taxpayers. Most states also 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.
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brief November 18, 2016 Collecting Sales Taxes Owed on Internet Purchases
Retail trade has been transformed by the Internet. As the popularity of “e-commerce” (that is, transactions conducted over the Internet) has grown, policymakers have engaged in a heated debate over how state and local sales taxes should be applied to these transactions. This debate is of critical importance for states as sales taxes comprise close to one-third of all state tax revenues and hundreds of billions of dollars in retail spending is now occurring online.
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report October 28, 2016 The Short and Sweet on Taxing Soda
The concept of taxing sodas and other sugary beverages has gained traction recently across the United States and around the world. The World Health Organization officially recommended a tax on sugar sweetened beverages as a way to battle the obesity epidemic. In the US, multiple states and localities have looked to taxes on sugar sweetened beverages as a way to improve public health and increase revenue. In 2014, Berkeley, California became the first U.S. locality to enact such a tax. In 2016, similar taxes were enacted in Boulder, Colorado; Albany, Oakland, and San Francisco, California; Cook County, Illinois; and Philadelphia, Pennsylvania.
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brief October 18, 2016 Cigarette Taxes: Issues and Options
Efforts to increase taxes usually face some opposition, particularly increases to broad-based taxes such as the sales or income tax. Yet in many states, lawmakers have been able to agree on one approach to revenue-raising: the cigarette tax. Since 2002, nearly every state has enacted a cigarette tax in-crease to fund health care, discourage smoking, or to help balance state budgets. This policy brief looks at the advantages and disadvantages of cigarette taxes, and cigarette tax increases, as a source of state and local revenue.
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report October 12, 2016 State Tax Subsidies for Private K-12 Education
This report explains the workings, and problems, with state-level tax subsidies for private K-12 education. It also discusses how the Internal Revenue Service (IRS) has exacerbated some of these problems by allowing taxpayers to claim federal charitable deductions even on private school contributions that were not truly charitable in nature. Finally, an appendix to this report provides additional detail on the specific K-12 private school tax subsidies made available by each state.
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report September 30, 2016 Comment Letter to FASB on Income Tax Disclosure
We appreciate the Financial Accounting Standards Board’s (FASB) ongoing review of its accounting standards to ensure that financial statements are “facilitating clear communication of information that is important to financial statement users.” Overall, the changes to disclosure requirements proposed by FASB in the exposure draft would represent a significant step forward toward providing users of financial statements the clarity that they need. We believe, however, that the exposure draft does not go far enough in providing the clarity needed and sought by investors and the public alike.
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report September 15, 2016 State Tax Codes as Poverty Fighting Tools
Despite this unlevel playing field states create for their poorest residents through existing policies, many state policymakers have proposed (and in some cases enacted) tax increases on the poor under the guise of “tax reform,” often to finance tax cuts for their wealthiest residents and profitable corporations.
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brief September 14, 2016 Property Tax Circuit Breakers
State lawmakers seeking to make residential property taxes more affordable 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- and middle-income taxpayers. One such targeted program to reduce property taxes 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 reducing property taxes.
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brief September 14, 2016 Reducing the Cost of Child Care Through State Tax Codes
Low- and middle-income working parents spend a significant portion of their income on child care. As the number of parents working outside of the home continues to rise, child care expenses have become an unavoidable and increasingly unaffordable expense. This policy brief examines state tax policy tools that can be used to make child care more affordable: a dependent care tax credit modeled after the federal program and a deduction for child care expenses.
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brief September 14, 2016 Rewarding Work Through State Earned Income Tax Credits
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.
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brief September 14, 2016 Options for a Less Regressive Sales Tax
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.
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brief August 22, 2016 How State Tax Changes Affect Your Federal Taxes: A Primer on the “Federal Offset”
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… -
brief August 22, 2016 Indexing Income Taxes for Inflation: Why It Matters
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… -
brief August 17, 2016 The Folly of State Capital Gains Tax Cuts
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…