The Use and Misuse of Interstate Tax ComparisonsJournal of State Taxation (1986)
Debates over state tax policies primarily involve interstate comparisons of corporate income tax burdens. These studies are often utilized without discussion of their intrinsic flaws. This article proposes more effective methods of interstate tax comparison. The first section discusses the failure to use proper analyses to determine whether taxes are too high or too low. The second section criticizes three commonly used methods of comparing interstate tax burdens: (1) taxes per capita, (2) taxes as a percentage of personal income, and (3) the representative tax system capacity and effort index. This section further explains the limitations of these three familiar measures by evaluating their lack of substantive information. This section concludes by explaining that these flawed measures often encourage legislators to design inadequate tax policies. The third section recommends two approaches that seek to eliminate the problems associated with tax burden studies: taxpayer profiles, and after-tax rates of return. The article concludes by explaining that, while limited in their value to legislators, tax burden studies should be more accurate and valuable than the current measures.
Citation InformationRichard D. Pomp, The Use and Misuse of Interstate Tax Comparisons, 5 J. St. Tax'n 97 (1986).