| Most state individual income tax laws incorporate by reference portions of the U.S. Internal Revenue Code to determine their respective tax bases, though to varying degrees. As a result, federal law changes may result in changes in state revenues, depending upon whether or not (and if so, to what degree) they are adopted by the states. Sweeping changes at the federal level, such as those encompassed by the Tax Reform Act of 1986, are capable of producing very significant changes at the state level, depending upon the state response. Early predictions suggested that as many as thirty-three states would receive revenue "windfalls" from the 1986 federal changes if they followed them completely and made no changes on their own.; The overhaul of the federal tax code gave states an opportunity to re-examine their own tax systems and, in some cases, make substantial changes. Bases were redefined, rates and progressivity structures were revised--and in a handful of cases, there was a complete restructuring of the system.; This study compares the various state income tax systems by categorizing them and calculating measures of effective and marginal rates, progressivities and elasticities. Constitutional and political implications of tax reform, as well as public perceptions of different tax systems, are discussed.; The study concludes that certain modern trends are clear in state income tax policy. For the states that did undertake tax reform, the general net effect was to increase progressivity. Increasing the tax exempt floor and broadening the tax base more than offset the flattening of rates. The perception of unfairness caused by steeply graduated rates causes misallocative behavior--thus the trend toward achieving progressivity by relying less on graduated rates and more on a tax shielded base is a good one. |
