The Way We Tax A 50-State Report

he vast majority of state tax systems are inadequate for the task of funding a 21st-century government.

Most of those tax systems are also unfair. They break the golden rule of tax equity: collect the lowest possible rates on the widest possible base of taxpayers.

In addition, at a time when states are desperate to collect every dime they’re owed, many are short-changing their tax-collection departments, cutting revenue agency budgets with a heavy hand.

These conclusions and others are the culmination of a year’s effort by a team of Governing staffers researching the tax structures and tax management of the 50 states. Scores of reports, hundreds of interviews and thousands of hours of analysis went into this effort to evaluate the way each state raises its revenues.

Of course, the burden a tax system must carry varies from state to state. There is no such thing as a perfect structure, no template that all, or even most, of the states could use. One of the glories of the American system of governance is that states are free to offer different degrees of service to their citizens. The main commonality is that they must raise whatever revenue they need to meet their chosen level of service. Raising money to meet irresponsible spending doesn’t make for a good tax system. But utilizing well-balanced streams of revenue and avoiding unsupportable tax cuts are critical, regardless of whether a state wants to have a Cadillac government or a Chevy.

Creating and maintaining a high-quality tax system — and balancing it against the demands of its citizenry — may be one of the most difficult tasks any state, or any government for that matter, faces. The two sides of the equation are often out of whack. Consider this: When Pennsylvanians were surveyed last summer, the majority favored higher prescription drug subsidies for the elderly, more money for public education and better funding for higher education. They also, however, opposed any increase in the state’s sales tax or income tax. Gambling was the only new revenue source people favored.

Of course, this is unrealistic. But it’s the nature of the implausible and inscrutable world of state taxation, a world in which hyperbole is the native language and nitty-gritty politics trumps common sense. “It’s the old classic,” says Arkansas Governor Mike Huckabee. “Everyone wants to go to heaven, but nobody wants to die.”

It’s also a world of pliable statistics, where reality is a relative concept. “There are 50 states, 50 education governors, 50 bad states for taxes,” says Randy Hodgins, who’s on the staff of the Senate Ways and Means Committee in Washington State. “You can make statistics do whatever you want.” Maine, for example, is 17th in its per-capita state tax burden. Mix in local taxes and the state has the 10th-highest per-capita tax burden. But look at taxes as a percentage of personal income, and the state zips up to third place.

States with unbalanced tax systems are particularly ripe for misinformation and misconception. In Texas, sales and property taxes are high because there is no income tax. Even though Texas ranks near the bottom in tax burden — per capita or otherwise — its citizens “think of themselves as overtaxed,” reports Judith Stallmann, a professor at the University of Missouri.

Regardless of whether a state has an income tax, sales tax, high property taxes, etc. my impression is that the spending habits of all states are somewhat similar and they all get the money somehow. So I don't think it makes much difference if there is no state income tax as the money will just come from somewhere else. Is that a reasonable assumption? Also it is the federal tax that takes by far the biggest bite out of our wallets.

“A diversified revenue structure is important,” says Don Boyd, director of the fiscal studies program at the Nelson A. Rockefeller Institute of Government.

Considering the condition that Rockefeller left New York's finances in, this looks like some kind of sick joke.

The way things are arranged today, if states don't have an income tax, the money that they would have taken just goes to the federal government. It's a bad idea, as it encourages states to adopt income taxes, but it's obvious why the high income tax states and the federal government wanted things that way. If there wasn't this guaranteed bite taken of incomes, there would be even greater flight to low tax states.

Thass right, Henrietta.

Excuse me, it comes as a surprise that these fools are advocating for more and higher taxes?

And not advocating spending restraint or even spending cuts?

Sounds to me like it is time to change some local, state and federal elected official's and bureaucrats' diapers!

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