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1 Elizabeth Malm, Comments on Who Pays; A Distributional Analysis of the Tax Systems in All 50 States 1 (2013)

handle is hein.taxfoundation/ffdgbxz0001 and id is 1 raw text is: February 20, 2013
No. 361
Comments on Who Pays? A Distributional
Analysis of the Tax Systems in All 50 States
Elizabeth Malm
The Institute on Taxation and Economic Policy (ITEP) released a report last month titled Who Pays? A
DistributionalAnalysis of the Tax Systems in All 50 States.1 The study attempts to examine the overall level of
regressivity of the tax systems of the fifty states and Washington, D.C. and presents state and local effective
tax rates (total state and local taxes paid as a percentage of income) for each state's five income quintiles. The
report finds that nearly all states have regressive state and local tax systems.
The report also surveys the features of each state and local tax system, characterizing each feature as either
regressive or progressive. Some of the tax system characteristics that ITEP regards as regressive are narrow
income tax brackets, lack of a state income tax, and high reliance on sales and excise taxes. Progressive
characteristics include little reliance on consumption taxes and graduated income tax rate structures.
Here we present three issues with ITEP's conclusions and policy recommendations, in addition to their
methods of presentation.
Issue #1: ITEP advocates tax policies that dampen economic growth in favor of short-term income
A tax system should choose long-term economic growth over short-term redistribution.2 Tax Foundation
Chief Economist Dr. William McBride recently published a comprehensive review of the literature on the
empirical relationship between taxes and economic growth over the last three decades, finding overwhelming
evidence of a negative relationship between the two.3 What's more interesting is that among the work that
examined specific tax types, researchers found that the most harmful to growth were corporate and
individual income taxes, followed by taxes on consumption. The least harmful were taxes on property.
ITEP suggests that states move away from taxes on consumption (sales and excise taxes) and aim for highly
progressive income taxes. That is, the report suggests moving more towards the taxes that are most harmful
1 Institute on Taxation & Economic Policy, Who Pays? A DistributionalAnalysis of the Tax Systems in All 50 States? (Jan. 2013),
ht ?_ i/ww~it[hereinafter ITEP Report].
2 WlimMcBride, How to Judge a Tax Plan, TAX FOUNDATION FISCAL FACT NO. 286 (Dec. 15, 2011),
SWilliam McBride, What Is the Evidence on Taxes and Growth?, TAX FOUNDATION SPECIAL REPORT NO. 207 (Dec. 18, 2012),

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