In recent years, most state governments have experienced painful budget deficits. Many states have reacted to these shortfalls by cutting spending or increasing taxes. Almost all states now have a third option that can help postpone these painful decisions: using a rainy day fund (RDF). Like a savings account, an RDF sets aside surplus revenue during periods of economic growth for use in times of budget shortfalls. This policy brief takes a closer look at how rainy day funds can help states through difficult fiscal times, and assesses options for improving the adequacy of these funds.
In recent months, lawmakers in a number of states have suggested that a particular type of sales tax, called the value-added tax or VAT, might be a cure-all for state budgetary problems. Although Michigan is the only state that currently relies on a VAT as a major revenue source, several other states have recently considered implementing this type of tax. This policy brief evaluates the case for (and against) implementing a VAT at the state level.
Corporate income taxes are in decline. Corporate tax revenues represent a smaller piece of the federal and state tax pie than at almost any time since World War II. While it is possible to diagnose some of the reasons for this decline on the federal level, very little public information is available to help policymakers evaluate the health of the corporate taxes collected by state governments. For this reason, some policymakers have called for better public disclosure of how much the biggest corporations are paying in state taxes. This policy brief evaluates arguments in favor of (and against) requiring detailed state corporate tax disclosure.