While there are many ways to show how much is collected in taxes by state governments, our Index is designed to show how well states structure their tax systems by focusing on the how more than the how much in recognition of the fact that there are better and worse ways to raise revenue.
The federal tax code remains a major source of frustration and controversy for Americans, and a hindrance to economic growth and opportunity. Other countries, such as Estonia, have proven that sufficient tax revenue can be collected in a less frustrating and more efficient way.
While there are many factors that affect a country’s economic performance, taxes play an important role. A well-structured tax code is easy for taxpayers to comply with and can promote economic development while raising sufficient revenue for a government’s priorities.
Tax burdens rose across the country as pandemic-era economic changes caused taxable income, activities, and property values to rise faster than net national product. Tax burdens in 2020, 2021, and 2022 are all higher than in any other year since 1978.
States are unprepared for the ongoing shift to remote and flexible work arrangements, or for the industries and activities of today, to say nothing of tomorrow. In some states, moreover, existing tax provisions exacerbate the impact of high inflation and contribute to the supply chain crisis.
A landmark comparison of corporate tax costs in all 50 states, Location Matters provides a comprehensive calculation of real-world tax burdens, going beyond headline rates to demonstrate how tax codes impact businesses and offering policymakers a road map to improvement.
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The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
Sen. Elizabeth Warren introduced a 7 percent surtax on corporate profits called the “Real Corporate Profits Tax.” We estimate that this tax would reduce the incentive to invest in the United States, and result in a 1.9 percent smaller economy, a 3.3 percent smaller capital stock, and 1.5 percent lower wages. The surtax would raise $872 billion between 2020 and 2029 on a conventional basis and $476 billion on a dynamic basis. The tax would make the tax code more progressive, but it would fall on taxpayers in every income group.
Capital gains taxes create a burden on saving because they are an additional layer of taxes on a given dollar of income. The capital gains tax rate cannot be directly compared to individual income tax rates, because the additional layers of tax that apply to capital gains income must also be part of the discussion.
Although Congress intended the AMT to be a tax on wealthy taxpayers, for much of its history it has subjected middle-income taxpayers in high-tax states to heavy compliance burdens. TCJA reforms that have increased the AMT’s exemption and exemption phaseout threshold will shield some taxpayers from the AMT through 2025, but the number of taxpayers impacted will increase in 2026 when the TCJA’s individual income tax reforms expire.
A key element of America’s dynamism problem is a drop in entrepreneurship. Removing tax barriers for entrepreneurs would improve America’s dynamism while making America’s tax code more neutral, efficient, and simple for all taxpayers.
The growing number of options that travelers have for rental cars, including peer-to-peer car-sharing arrangements, is an opportunity for policymakers to revisit the policy rationale for these discriminatory taxes.
Tax policy can increase the size of the economy by having a positive impact on the incentives to work and invest. However, when tax policy is temporary or retroactive, these positive effects are muted, and policies do not effectively incentivize the intended activity.
We estimate that a new proposal to expand the EITC would reduce federal revenue by $1.8 trillion and decrease long-run GDP by 0.29 percent, while boosting labor force participation for low-income tax filers by 822,788 full-time equivalent jobs.
Research shows that the current menu of education-related tax benefits is not effectively promoting affordability or the decision to attend college. Lawmakers wishing to provide education assistance should reconsider whether the tax code is the best tool to achieve that goal.
Despite tax cuts in recent years, Wisconsin’s overall tax structure lags behind competitor states in simplicity, tax rates, and business climate for residents and investment. Explore our new comprehensive guide to see how the Badger State can achieve meaningful tax reform.
Expensing, or the immediate write-off of R&D costs, is a valuable component of the current tax system. The TCJA’s change to amortization in 2022, requiring firms to write off their business costs over time rather than immediately, would raise the cost of investment, discourage R&D, and reduce economic output.
The fall and then rise of entrepreneurial income claimed on the wealthy’s 1040 tax returns clearly tracks the seeming decline of inequality from 1950 to 1980, followed by the sudden rise in inequality since 1986. The shifting composition of income claimed by the rich due to changes in tax laws explains this illusion.
States incorporate provisions of the federal tax code into their own codes in varying degrees, meaning that federal tax reform has implications for state revenue beyond any broader economic effects of tax reform.
Research suggests place-based incentive programs redistribute rather than generate new economic activity, subsidize investments that would have occurred anyway, and displace low-income residents.