Tax Policy Handbook for State Legislators

Executive Summary

The role of state government continues to evolve and grow. The federal government is “devolving” or returning control of programs to the states, and state courts are requiring states to contribute more money to elementary and secondary education. As a result, state revenue systems are being asked to provide more funding for public services that previously were supported by federal or local governments.

These factors, along with recent budget pressures, have led lawmakers in many states to take a fresh look at their tax systems to see whether they meet the current and future needs of their respective governments. During the last decade, roughly half the states have convened tax study commissions-legislative, executive, private sector or some combination-to examine the tax structure and recommend changes.

This report is designed to provide new legislators-or legislators who have limited experience in tax policy-with basic tools for evaluating different state taxes. It provides an overview of the current state tax systems. It also evaluates each major state tax on six criteria developed by a group of legislators, legislative staff and other tax experts convened by NCSL in the early 1990s. The six criteria are reliability, equity, compliance and administrative issues, interstate and international competition, economic neutrality, and accountability.

This report is designed to summarize economists’ analyses of the key feature of each state tax source in a concise format.

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