Friday, February 7, 2020
Amy Monahan (Minnesota) presented Against State Individual Income Tax Conformity at Duke yesterday as part of its Tax Policy Workshop Series hosted by Richard Schmalbeck and Lawrence Zelenak:
Nearly every state incorporates the federal tax code into its individual income tax system. This widespread incorporation has many supporters and has been justified on the basis that it is necessary in order for states to have a simple and efficient tax system. This article argues that the benefits of incorporation are overstated and that such incorporation results in either a loss of state sovereignty or the needless complication of the state tax legislative process, all while increasing revenue volatility. It buttresses these arguments through a novel examination of how states that tightly conformed to the federal individual income tax responded to the recently enacted Tax Cuts and Jobs Act which, for these states, would have both raised state taxes and changed the distribution of state tax burdens in a way that disadvantaged large families.
It concludes by offering suggestions for how states can move past the idea that conformity with the federal tax code is required and instead design an individual income tax system that is simple, efficient, and enhances a citizen’s relationship to the state.