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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…
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…
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.
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.
Texas is a Low Tax State, But Not for Families Living in Poverty
August 15, 2011 • By Meg Wiehe
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 as a low tax state — instead, they pay more than their fair share of state and local taxes. Read the Full Report (PDF)
Washington is a Low Tax State, But Not for Families Living in Poverty
August 14, 2011 • By Meg Wiehe
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 as a low tax state — instead, they pay more than their fair share of state and local taxes. Read the Full Report (PDF)
Tennessee is a Low Tax State, But Not for Families Living in Poverty
August 14, 2011 • By Meg Wiehe
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 as a low tax state — instead, they pay more than their fair share of state and local taxes. Read the Full Report (PDF)
Florida is a Low Tax State, But Not for Families Living in Poverty
August 14, 2011 • By Meg Wiehe
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 as a low tax state — instead, they pay more than their fair share of state and local taxes. Read the Full Report (PDF)
Arizona is a Low Tax State, But Not for Families Living in Poverty
August 14, 2011 • By Meg Wiehe
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 as a low tax state — instead, they pay more than their fair share of state and local taxes. Read the Full Report (PDF)
Why States That Offer the Deduction for Federal Income Taxes Paid Get it Wrong
August 1, 2011 • By ITEP Staff
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…
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.
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…
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.
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