Tax Policy

Tax Policy


Justin M. Ross, Olivia Gonzalez | Aug 11, 2015
Taxpayers and policymakers alike are drawing attention to opaque tax practices at the local level. Recent evidence suggests that local officials have the incentive to raise extra revenue through less transparent means and are channeling this revenue into assets for future spending. States have an opportunity to make their tax structure more transparent by adjusting tax rates following property reassessments and making the calculation of their property taxes clearer.
Justin M. Ross | Jun 23, 2015
An important concern to the efficiency of public finance systems is that voters suffer from various “fiscal illusions” that can politicians can exploit to expand the public sector. This paper contributes evidence of this effect on a public finance system through the revenue elasticity hypothesis, which is a form of fiscal illusion in which voters confuse tax rates with tax burdens in the approval of public spending. The applied empirical setting is Virginia cities and counties from 2001 to 2011, where the timing of mass property reappraisals is exogenous but known to local policymakers in setting the annual budget.
Adam J. Hoffer, Rejeana Gvillo, William F. Shughart II , Michael D. Thomas | Mar 03, 2015
This study provides a systematic analysis of selective consumption tax policy. We detail both the motivations behind selective consumption taxes and the policy’s shortcomings. Empirically, we explore how consumption of 12 goods—alcohol, cigarettes, fast food, items sold at vending machines, purchases of food away from home, cookies, cakes, chips, candy, donuts, bacon, and carbonated soft drinks—varies across the income distribution by calculating the goods’ income-expenditure elasticities.
Thomas Stratmann, Andreea Militaru, Rachel Reese | Aug 21, 2014
State and local governments often turn to increases in sales taxes to generate added revenue. Estimates of fresh revenue from the higher tax tend to be overly optimistic, partly because the number of sales tax exemptions tends to rise with the rising tax rate.
Pavel A. Yakovlev | Jul 10, 2014
This study investigates the relationship between various measures of economic performance and taxation in a longitudinal panel of American states.
Christopher Coyne, Lotta Moberg | May 16, 2014
The governments of American states often attempt to incentivize businesses to locate within their borders by offering targeted benefits to particular industries and companies. These benefits come in many forms, including business tax credits for investments, property tax abatements, and reductions in the sales tax. Despite good intentions, policymakers often overlook the unseen and unintended negative consequences of targeted-benefit policies. This paper analyzes two major downsides of these policies: (1) they lead to a misallocation of resources, and (2) they encourage rent-seeking and thus cronyism. We argue that these costs, which are often longer-term and not readily observable at the time the targeted benefits are granted, may very well outweigh any possible short-term economic benefits.

Testimony & Comments

Research Summaries & Toolkits

Expert Commentary

Sep 18, 2015

Some states have addressed the problem with what’s known as a “roll-back” rule, where current property tax rates are compared with an adjusted version of the property tax rates that account for the growth in property values. Instead of comparing the 2015 property tax rate to the rate posted in 2014, they recalculate what the rate would have been in 2014 by using the 2015 property values. This transparently gives voters context on the size of the property tax extraction from its base. Perhaps more revenue from property taxes is desirable, but it should be transparent to citizens, without misleading claims that politicians somehow managed to keep taxes flat and increase spending simultaneously.
Oct 20, 2014

What would your family do with an extra $3,000 this year? Use the money for college education? Take more vacation? Pay off debt? Based on my research, if state governments eliminated all special privileges in their tax systems and lowered tax rates an equivalent amount, the average family could save thousands of dollars annually – all without any reduction in government services.
Sep 02, 2014

With summer nearly over, and school years starting again across the county, many states are declaring this time of year a holiday season of sorts: a “tax holiday” season. This year, 17 states will create tax-free holidays to exempt many back-to-school items from state sales tax.
Aug 18, 2014

Several states cut a wide variety of taxes this summer. Indiana and Rhode Island, for example, cut the conventional corporate tax. Idaho, meanwhile, took an unconventional route by cutting sales taxes on software purchased through “the cloud.” When revenues are on the rise, some states choose to lower taxes, while others prefer to spend the tax windfall. Both moves could be wrong.
Jun 23, 2014

Simple tweaks to Indiana’s tax system will be insufficient to attract leading firms and spur the success of those at home; reforms must be part of a well-planned growth strategy. If the Hoosier State wants to position itself as a global competitor, its leaders must approve a comprehensive plan that lightens the tax burden on citizens and businesses in a way that allows government to serve the people by performing its core functions.
Feb 19, 2014

The Academy Awards are nearly upon us, and that means long-winded acceptance speeches from actors and directors, filled with thanks for all the people who have helped them along the way. Listen closely to those speeches. Because they should really be thanking you.


State and local governments often increase sales taxes to generate additional revenue; however, projections of added revenue tend to be over-optimistic, in part because sales tax exemptions tend to increase along with the tax rate. These charts illustrate the relationship between average sales taxes and exemptions among the states (five states without sales taxes were removed, as was Hawaii because of its complex tiered system).



Eileen Norcross | October 08, 2015
Eileen Norcross discusses a recent op-ed on the need for transparency surrounding property tax increases in Virginia with Mike Schickman on WSVA.

Recent Events

Join us to discuss these questions: • Do TELs Limit Budget Growth? • What do states need to know before implementing a TEL? • How would a TEL affect your state? Matthew Mitchell, Research Fellow, Mercatus Center at George Mason University Assembly Member Micah Kellner, New York 65th District Nick Kasprak, Programmer and Analyst, Tax Foundation…

Media Clippings

Matthew Mitchell | Jul 28, 2013
The Governor’s Opportunity Fund — just one of numerous economic-incentive programs operated by the state — is something like a slush fund the governor can use to “secure a business location or expansion project.”…
Matthew Mitchell | Jul 11, 2013
[A]s my research has emphasized, privileges lead to a host of economic problems because they undermine competition, encourage wasteful privilege-seeking, and put politicians rather than consumers in charge of allocating capital and resources.
Jason J. Fichtner | Dec 05, 2012
Jason Fichtner cited at The Washington Times.
Eileen Norcross | Jul 11, 2012
Eileen Norcross is quoted in the guardian discussing the straining budgets of state and local governments in the U.S.
Antony Davies | Feb 19, 2012
Antony Davies explains why Nevada Gov. Brian Sandoval's economic development plan is a step in the wrong direction.
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