How Federal Tax Reform Can Impact States
This piece was previously published in The Hill.
The American tradition of arguing about taxes is as old as the republic. This helps explain why leaders of both parties propose changes to the federal tax code on a nearly continuous basis. These changes are almost always characterized as reforms and are scrutinized for their impact on taxpayers and the federal budget. What often goes unnoticed is how tax reform on the federal level can cascade down to the states.
In fact, states frequently link their tax laws to the federal code, for good reasons. For example, doing so allows states to reinforce policy goals they share with the federal government, such as supporting low- and moderate-income families with the earned income tax credit. And when state policy mirrors federal law, filing becomes easier for taxpayers—and may encourage compliance. Conformity also makes the state tax system less expensive to administer and enforce.
But there can also be unintended consequences. When federal tax policy is modified, state lawmakers are faced with the decision of whether to follow the lead of Congress—weighing the advantages of conforming against the possible impact on revenue and their own policy priorities.