The federal government’s budget has long been in the crisis stage. Can Washington learn anything from the 50 state governments?
Each state faces unique fiscal challenges. As we have reported previously, several organizations have reviewed the different approaches and philosophies. Wallethub has compiled a list of 2015’s Most & Least Fair State Tax Systems. The organization seeks to find which states have the most reasonable tax systems, and ranks them.
According to Wallethub’s research, the fairest tax systems exist (from first to 10th place) in Montana, Oregon, South Carolina, Delaware, Idaho, Minnesota, Utah, Virginia, Colorado, and Maryland .The states with the “least fair” are (from worst to 10th worst) Arizona, Indiana, Texas, Mississippi, Florida, Illinois, Arkansas, Hawaii, Georgia and Washington. The middle class is most overtaxed in Arkansas, New York and Mississippi, while the poor are most overtaxed in Wyoming, Nevada, and Florida.
According to the Council of State Governments “State fiscal conditions in the 2014 fiscal year were somewhat of a mixed bag.
“On the one hand, states experienced much slower revenue growth than the prior year. State general fund revenues grew only 1.3 percent in the 2014 fiscal year, compared to 7.1 percent in 2013. The main reason for the strong revenue growth in the 2013 fiscal year and the slow growth in 2014 was due to the impact of the federal ‘fiscal cliff.’ In 2013, states experienced temporary gains in revenues as taxpayers took actions to avoid scheduled higher federal taxes; in the 2014 fiscal year, states did not experience the same one-time gains.
“While state general fund revenues experienced much slower growth in the 2014 fiscal year, total state expenditures—or spending from all fund sources—grew much more sharply. In 2014, total state spending—general funds, other state funds, bonds and federal funds combined—grew 5.7 percent, compared to 2.2 percent in 2013. The accelerated growth in total state spending largely was due to increased federal expenditures, as federal funds to states grew 7.6 percent in the 2014 fiscal year mainly as a result of the Medicaid expansion under the Affordable Care Act. In contrast, in both 2013 and 2012 federal funds to states declined by 1.8 percent and 9.8 percent respectively due to the wind down of spending from the American Recovery and Reinvestment Act, or stimulus.”
The American Legislative Exchange Council (ALEC) hasn’t rated state tax systems. It does analyze what role taxes should play, and what principles should guide the structure of a tax system.
According to ALEC’s research,
“The proper function of taxation is to raise money for core functions of government, not to direct the behavior of citizens or close budget gaps created by overspending. This is true regardless of whether government is big or small, and this is true for lawmakers at all levels of government.
“Taxation will always impose some level of burden on an economy’s performance, but that harm can be minimized if policymakers resist the temptation to use the tax code for social engineering, class warfare and other extraneous purposes. A principled tax system is an ideal way for advancing a state’s economic interests and promoting prosperity for its residents.
“The goal of American tax policy should be to raise revenue for functions of government in a way that minimizes distortions, so as to grow the overall economy and facilitate commerce.”
ALEC maintains that tax codes should be:
- Simple enough for the average citizen to comprehend, and easy enough for governments to administer.
- Transparent, accountable to public scrutiny. Changes should be made only after open debate.
- Economically neutral, not designed to encourage or discourage any activity.
- Fair and equitable, not designed to pick winners or losers.
- Complementary with other tax codes, keeping a healthy relationship between cities and states.
- Competitive with other jurisdictions, so businesses and individuals don’t leave because of them.
- Reliable, so that people and enterprises feel confident about financial planning for the future.
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