State & Local Finance Initiative

Revenue and Taxation:

State and local taxes play important roles in assisting low- and moderate-income families, attracting business development, and stabilizing negative effects of economic downturns. Serving as a laboratory for different approaches to resolving tax and fiscal issues, all of the state and local governments have different approaches to collecting the revenue necessary to fund services. The mix of taxes varies significantly across states, depending on their economic activities, physical characteristics, and policy choices. In addition to financing public services, state and local governments also use their tax systems as a tool of social and economic policy. Governments might create special incentives to attract businesses, for example. And like the federal government, states often give tax preferences for targeted activities such as education, military service or business expansion or relocation. Local governments have preferences relating to property tax forgiveness or special assessment districts. 

Spotlight

District of Columbia Tax Revision Commission

The District of Columbia Tax Revision Commission has issued final recommendations to the Mayor and Council. Kim Rueben, Director of the State and Local Finance Initiative (SLFI), served as a commissioner and Norton Francis of SLFI provided the Commission an analysis of the business franchise taxes. Steven Rosenthal, a Senior Fellow at the Tax Policy Center, is the staff director for the Commission. The Commission's recommendations are a mix of business and resident measures aiming to create a more competitive business environment and a more progressive tax structure, particularly for middle income residents.

Final Report

Business Franchise Taxes in the District of Columbia

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Featured Publication

State and Local Tax Deductions (Article/Tax Facts)
Yuri Shadunsky

Back from the Dead: State Estate Taxes After the Fiscal Cliff (Research Report)
Norton Francis

What Federal Tax Reform Means for State and Local Tax and Fiscal Policies(Testimony)
Kim Rueben

Gasoline Taxes and Rising Fuel Prices (Research Report)
Kim Rueben , Yuri Shadunsky

Sales Tax Holidays (Article/Tax Facts)
Carol Rosenberg , Kim Rueben

State Tax Systems Can Be Important Part of Safety Net (Article/Tax Facts)
Elaine Maag

Emerging State Business Tax Policy: More of the Same, or Fundamental Change? (Article/Tax Facts)
William F. Fox, LeAnne Luna, Matthew N. Murray

State Revenue Responses to Fiscal Shortfalls (Article/Tax Facts)
Kim Rueben , Ritadhi Chakravarti

 
Publications for Revenue and Taxation

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Municipal Debt: What Does It Buy and Who Benefits? (Research Report)
Harvey GalperKim RuebenRichard C. AuxierAmanda Eng

This paper examines the incidence of the federal income tax exemption of interest on state and local bonds, applying a fixed-savings, simplified general equilibrium approach to estimate incidence effects on both the sources and uses of income. In contrast to traditional empirical work that allocates the benefit of tax exemption only to current holders of tax-exempt bonds based on current interest rates, we incorporate the fact that the existence of tax exemption causes the taxable interest rate to rise and the tax-exempt rate to fall. As a consequence, on the sources side, tax exemption can increase after-tax income for holders of both taxable and taxexempt bonds. On the uses side, consumers of both private and public goods are affected by the higher cost of funds to private and federal government borrowers, the lower cost of funds to state and local borrowers, and the lower cost of funds to private-sector entities with access to the proceeds of tax-exempt borrowing. Overall, higher income individuals remain the primary beneficiaries of tax exemption on the sources side with this new approach, but less so than under the traditional approach. On the uses side, households who consume a relatively large share of state and local public services, such as those with several school-age children, receive significant net benefits.

Published: 10/29/14
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Assessing Pension Benefits Paid under Pennsylvania's State Employees' Retirement System (Research Report)
Richard W. JohnsonBarbara ButricaOwen HaagaBenjamin G. Southgate

Pennsylvania’s pension plan for state employees receives a failing grade in the Urban Institute’s state and local pension plan report card, and ranks as the third-worst plan in the nation covering newly hired general state employees. The plan scores poorly because it is inadequately funded, it penalizes work at older ages by reducing lifetime benefits for older employees, and it provides few retirement benefits to short-term employees. Age-25 hires must work 32 years before they accumulate rights to future pension benefits worth more than their required plan contributions. Various pension reforms could distribute benefits more equitably across the workforce.

Published: 09/04/14
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Evaluating Retirement Income Security for Illinois Public School Teachers (Research Report)
Richard W. JohnsonBenjamin G. Southgate

The financial problems afflicting Illinois’s teacher pension plan have grabbed headlines. An equally important problem, though underappreciated, is that relatively few teachers benefit much from the plan. Long-serving teachers receive generous pensions, but only 18 percent of teachers remain employed for at least 25 years. Only 24 percent of those who complete at least five years of service receive pensions worth more than the value of their required plan contributions. Alternative plan designs, such as cash balance plans, could distribute benefits more equitably and put more teachers on a path to a financially secure retirement.

Published: 07/30/14
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State Economic Monitor: July 2014 (Series/State Economic Monitor)
Norton FrancisKim RuebenRichard C. Auxier

The latest edition of the Tax Policy Center's State and Local Finance Initiative's State Economic Monitor reports that states are still struggling to emerge from the lingering recession. The good news is that nearly all states experienced economic growth in 2013, and only one state has an unemployment rate above 8 percent. But few states have fully recovered from the 2007 downturn, and new problems are arising. State tax revenues were down in the first quarter, driven by a significant decline in income tax revenue, and a non-government forecast estimates that the revenue drop may become even more severe. The Monitor also reviews the health of other aspects of state economies such as total employment, real earnings, and housing. This edition’s special supplement highlights a new Urban Institute report on public pension plans.

Published: 07/09/14
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State Economic Monitor: April 2014 (Series/State Economic Monitor)
Norton FrancisBrian David Moore

The latest edition of the Tax Policy Center's State and Local Finance Initiative's State Economic Monitor finds the economic recovery continues to improve slowly. No state unemployment rate increased from last year in February but long term unemployment remains a problem and is above average in most states. The Monitor reviews the health of various aspects of state economies, including employment, housing, state finances, and economic growth. This edition also reports state general fund revenue forecasts for fiscal year 2015.

Published: 04/14/14
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A Comparison of State Minimum Wages  (Article/Tax Facts)
Norton FrancisYuri Shadunsky

This Tax Fact examines minimum wages across states. The current federal minimum wage, which applies to almost all employees, is $7.25 per hour — unchanged since 2010. The District of Columbia and 21 states set minimum wages higher than the federal rate.

Published: 04/01/14
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State Policy and EITC Expansion for Childless Workers (Article/Tax Facts)
Elaine MaagBrian David Moore

President Obama and others have proposed increasing the federal earned income tax credit for workers without qualifying children. That would automatically raise state EITCs in the 23 states that calculate a state-level credit for this group as a percentage of the federal credit.

Published: 03/20/14
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Exploring the Causes and Effects of Revenue Decentralization: Does Revenue Decentralization Increase or Reduce Economic Growth? (Research Report)
Kuralay Baisalbayeva

Although many developing and transition countries are pursuing fiscal decentralization reforms, the debate surrounding the relationship between revenue decentralization and economic growth has not yet been fully resolved. While proponents of decentralization suggest that local own source revenue collections are generally evidence of an effective local public sector, a contrasting view holds that revenues collected by weak and non-responsive local governments tend to negatively affect economic growth. Our analysis suggests that the relationship between revenue decentralization and economic growth differs considerably for different groups of countries, but does not find any evidence for the hypothesis that revenue decentralization suppresses economic growth.

Published: 01/31/14
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State Economic Monitor: January 2014 (Series/State Economic Monitor)
Norton FrancisYuri Shadunsky

The latest edition of the Tax Policy Center's State and Local Finance Initiative's State Economic Monitor finds the recovery still struggling for momentum. The unemployment rate has improved but remains over 40 percent higher than the pre-recession rate and public sector employment continues to contract, driven by federal reductions in employment. The Monitor reviews the health of various aspects of state economies, including employment, housing, state finances, and economic growth. This edition also examines research on Medicaid expansion in the states.

Published: 01/24/14
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Property Taxes in the United States (Article/Tax Facts)
Benjamin H. HarrisBrian David Moore

This Tax Fact examines the property tax burden as a share of home value in the United States. Most counties have property tax burdens between 0.5 and 1.5 percent of home value. As a share of home values, counties in the Northeast, parts of the Midwest, and Texas tend to have higher property taxes relative to other counties.

Published: 12/04/13
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