Recent Work
2048 items
How State Tax Changes Affect Your Federal Taxes: A Primer on the “Federal Offset”
August 1, 2011 • By ITEP Staff
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.
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.
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.
Tax Policy Nuts and Bolts: Understanding the Tax Base and Tax Rate
August 1, 2011 • By ITEP Staff
This policy brief explains two basic, but important tax policy terms- the tax base and tax rate. Since these concepts are often confusing, having a grasp on the ins and outs of tax bases and rates will help provide a better understanding of how all state and local taxes work.
Everyone agrees that tax "fairness" is important--even though there is often disagreement on what fairness means. A well-informed debate on who should pay the most taxes must start by assessing who actually does pay the most--and the least. Too often taxes are studied only with an eye towards tax rates instead of an understanding of how taxes impact people depending on their income. Tax incidence analyses answer basic questions by measuring how taxpayers at different income levels are affected by the current tax system and various tax reform alternatives. This policy brief provides a basic introduction to using ITEP's tax…
A robust corporate income ensures that profitable corporations that benefit from public services pay their fair share towards the maintenance of those services, just as working people do.. More than forty states currently levy a corporate income tax. This policy brief explains why corporations should be taxed and the basic workings of the corporate tax.
The “QPAI” Corporate Tax Break: How it Works and How States Can Respond
August 1, 2011 • By ITEP Staff
The past quarter century has seen a dramatic decline in the yield of corporate income taxes at both the federal and state levels. Major federal corporate tax legislation enacted in 2004 created a new tax break, known as the "Qualified Production Activities Income" (QPAI) deduction that has further accelerated the decline of the corporate tax. This policy brief evaluates the QPAI deduction and discusses possible state policy responses.
Every state that levies a corporate income tax must determine, for each company doing business within its borders, how much of the company's profits it can tax. One factor that all such states use to make this determination is the percentage of the company's nationwide sales that can be attributed to the state. Ideally, all of a company's sales would be attributed to the states in which it operates, but, due to differences among states' corporate income tax rules, this is not always the case. In some instances, a portion of a business' sales are not attributed to any state,…
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 the use of combined reporting, a method of taxation currently employed in more than half of the states with a corporate income tax. Eight states have enacted legislation to institute combined reporting within the past five years. Commissions and lawmakers in several other states, such as North Carolina, Maryland, Rhode Island and Kentucky,…
Sales taxes are among the most important--and most unfair--taxes levied by state governments. Sales taxes accounted for a third of state taxes in 2011, but sales taxes are regressive, falling far more heavily on low- and middle- income taxpayers than on the wealthy. In recent years, lawmakers thinking they might lessen the impact of these taxes have enacted "sales tax holidays" that provide temporary sales tax breaks for purchases of clothing, computers, and other items. This policy brief looks at sales tax holidays as a tax reduction device.
Retail trade has been transformed by the emergence of 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 sales taxes should be applied to these transactions. This debate is of critical importance for state lawmakers because sales taxes comprise close to a third of all state tax revenues.
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 important source of funding for public services. This policy brief discusses the advantages and disadvantages of two approaches to progressive sales tax relief: broad-based exemptions and targeted sales tax credits.
General sales taxes are an important revenue source for state governments, accounting for close to half of state tax collections nationwide. But most state sales taxes have a damaging structural flaw: the tax typically applies to most sales of goods, such as books and computers, but exempts most services such as haircuts and car repairs. This omission is not the result of conscious policy choices, but a historical accident: when most state sales taxes were enacted in the 1930s, services were a relatively small part of consumer spending.
Sales and excise taxes, or consumption taxes, are an important revenue source, comprising close to half of all state tax revenues. These taxes are levied in each of the fifty states and are often considered "hidden" to consumers since they're spread out over many purchases rather than paid in one lump sum. This policy brief takes a closer look at how these taxes are calculated.
With the state’s gas tax pegged to the price of gasoline, North Carolina is scheduled to raise its gas tax rate on July 1. This increase was entirely predictable, but is understandably controversial. Unfortunately, the debate surrounding what to do in the wake of this increase has been far too narrow, focusing on just two […]
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