Tax Policy

If you want to change tax policy in your state, sometimes you have to challenge conventional wisdom.  That was the take-home message during The Council of State Governments’ May 4 webinar, “Tax Policy Reform: What States Are Doing to Capture More Revenue.” The webinar was part of the continuing Leadership Development Series, sponsored by CSG’s Tolls Fellows Program.

In response to mounting budget pressures, state governments have cut aid to local governments. At the same time, policymakers are calling for more efficiency at the local level in order to make the most of limited financial resources.

As states continue to struggle with budget shortfalls in the face of increasing obligations in areas like education, pensions and unemployment insurance, more and more states are exploring reforms to their existing tax codes in the search for new revenue streams. This webinar featured a discussion of the holes in many states' existing tax codes--the sales tax code in particular--and how states can reform their tax structure to capture more revenue. 

Soon after Rick Snyder introduced his first proposed budget as Michigan’s governor, lawmakers were being inundated with phone calls about one idea in particular: taxing the pension income of retirees.

As states continue to struggle with budget shortfalls in the face of increasing obligations in areas like defense, education, Medicaid and Medicare, more and more states are exploring reforms to their existing tax codes in the search for new revenue streams.  Join us for a discussion of the holes in many states’ existing tax codes – in particular sales tax code – and how states can reform their tax structure to capture more revenue. 

 

Just about every state’s corporate taxes leak like a sieve and their sales taxes are “riddled with inefficiency and waste,” Richard D. Pomp, the Alva P. Loiselle Professor of Law at the University of Connecticut and a nationally recognized tax expert, said.  In fact, Pomp added, there should be a sign at each state’s airports inviting tax lawyers to “pick our pockets.” Pomp was one of the featured speakers during the “Challenges to State Revenue Structures and Response to Revenue Reductions” session during The Council of State Governments’ Growth and Prosperity Virtual Summit of the States.

State tax systems have been criticized as being overly complex and difficult to decipher. They suffer from three serious structural flaws: misaligned state sales taxes, a lack of aggressive e-commerce tax revenue and too many exemptions. Add to this the ongoing challenge of state budgets continuing to falter with record gaps in 2011 and the requirement to balance the budgets in nearly all states. As a result, most states have enacted serious cuts in state expenditures to deal with their revenue fallouts. Learn about innovative ideas enabling states to restructure their tax codes, explore new revenue generation models and the ways some states are reaching budget equilibrium.

 

By 2014, Internet sales are estimated to reach almost $250 billion a year, says Forrester Research. And for some of the Internet’s largest retailers, many of those sales take place without the customer paying state sales taxes. That’s a big chunk of revenue states are trying to figure out how to capture with, so far, little success. As state budget crises have deepened, many policymakers have looked toward enacting so-called “Amazon laws,” named after the Internet’s retail giant. While states already have well-established rules regarding tax collection for bricks-and-mortar stores, online-only retailers have proved to be a trickier nut to crack.

During the current fiscal crisis, most states in the Midwest have chosen not to enact broad-based tax increases — a trend likely to continue as new annual and biennial budgets are finalized. 

Former U.S. Sen. Alan Simpson has six good reasons for wanting to see the country address its debt problems. His co-chair on the National Commission on Fiscal Responsibility and Reform, Erskine Bowles, has eight reasons. Those reasons would be their grandchildren.

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