Observing State Tax Policy.

• Author: Tomsic, Trinity D.
• Position: Books

State Tax Policy: A Political Perspective by David Brunori, The Urban Institute Press, Washington, D.C., 2001. 156 pages, softcover, $25. To order, call (202) 261-5687 or toll-free 1-877-847-7377.

Much has been written about the fragile condition of state economic systems. However, the prosperity of the 1990s disguised many problems.

Now states are in the midst of an economic downturn and are struggling to meet their revenue needs. If state legislators turn their attention to their tax structures (as some already are), David Brunori's book, State Tax Policy--A Political Perspective, is a good place to start.

Brunori analyzes the critical policy issues facing state government. He tackles interstate tax competition, political interests that influence policymakers, policy issues presented by specific taxes and the challenges that lie ahead.

He identifies the relentless quest for economic development as one of the greatest threats to a fair and efficient tax system. States use targeted tax incentives to lure corporations and encourage firms to expand and stay. Brunori contends that targeted tax incentives reduce state revenue, violate principles of fairness, add to administrative inefficiencies and raise accountability questions because most deals are exempt from public disclosure laws.

Brunori offers a few solutions to reduce targeted tax incentives: educating legislators and the public, evaluating the effectiveness of programs and requiring companies to guarantee investments in capital and jobs.

Each of these has been pursued to a limited degree, but with no discernable effect on the widespread use of tax incentives. As one legislator quoted in Brunori's book put it, "If they're creating jobs, we will give them what they want." Despite objections from economists and political theorists, targeted tax breaks continue to grow. Political pressure to create jobs is too strong. In addition, legislators see targeted tax incentives as providing immediate results, whereas improving infrastructure to lure businesses, for example, takes too long.

Brunori also examines specific types of taxes, focusing on the economic, political and social issues.

He points out that the sales tax faces pressure from many different factors--electronic commerce, a shift to a service-based economy, political...