February 14, 2012
Federal Tax Reform: Lessons From the States
The different state tax actions taken over the last decade to reduce short-run deficits related to recessions and to improve longer-run business tax competitiveness reflect a similar balancing of conflicting goals and policy challenges to those confronting federal policymakers now. States have experimented with a variety of changes to modify their corporate income taxes or replace them with alternative business tax bases. Those actions have been shaped by growing concern over the national and international competitiveness of state business tax systems.
Those same concerns are likely to be weighed at the federal level as policymakers seek to simplify the tax code, increase U.S. tax competitiveness, and change the structure of federal business taxes. Although no state has found the ‘‘ideal’’ business tax system that can serve as a model for federal business tax reform, the state experience provides a number of lessons for the federal debate. Companies can help policymakers sort through these complex issues by educating them about possible winners and losers, economic effects, and possible unintended consequences of tax policy changes.
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