Subject: Studies in the News 03-49 (July 31, 2003)


CALIFORNIA RESEARCH BUREAU
CALIFORNIA STATE LIBRARY
Studies in the News:
Revenue, Taxation and Budgeting Supplement


Contents This Week

Introductory Material GENERAL GOVERNMENT
   Federal budget deficit projection
   Tax cuts expand deficit
   State income tax and low-income families
   State governments encroaching on the local property tax
   Future of property taxes
   Federal spending in the states
   CalSTRS sues over fund cut
   Growth rates of state taxes
   Corporate tax sheltering
   Tax climate for businesses
   Tax growth compared to income growth
   Massachusetts consumption taxes on the poor
   Tax reform for families
   Commission report on tax policy
   Tax revenue summary
   EU taxes internet downloads
   Tax roundtable proceedings
   The earned income tax credit and housing policy
   State/local tax burdens ranked
PREVIOUSLY IN STUDIES IN THE NEWS
   Studies in the News (July 16, 2003)
Introduction to Studies in the News

Studies in the News is a very current compilation of items significant to the Legislature and Governor's Office. It is created weekly by the State Library's Research Bureau to supplement the public policy debate in California’s Capitol. To help share the latest information with state policymakers, these reading lists are now being made accessible through the State Library’s website. This week's list of current articles in various public policy areas is presented below.

Service to State Employees:

  • When available, the URL for the full text of each item is provided.

  • Items in the State Library collection can be checked out to state officials and staff.

  • Access to all materials listed will be provided by the State Information Reference Center, either by e-mail to cslsirc@library.ca.gov or by calling 654-0261.

The following studies are currently on hand:

GENERAL GOVERNMENT

FEDERAL BUDGET

The Causes and Significance of the New Deficit Figures. By Richard Kogan, The Center on Budget and Policy Priorities. (Center, Washington, DC) July 15, 2003. 3 p.

Full Text at: www.centeronbudget.org/7-15-03bud2.pdf

["The Office of Management and Budget (OMB) released new figures showing this year's budget deficit growing to $455 billion. That figure is almost $800 billion worse than the projection for fiscal year 2003 that OMB issued in February 2001; at that time, OMB forecast a surplus of $334 billion in 2003."]

[Request #S8736]

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$300 Billion Deficits, as far as the Eye Can See. By Richard Kogan, Center on Budget and Policy Priorities. (The Center, Washington, DC) July 2003. 12 p.

Full Text at: www.cbpp.org/7-2-03bud.pdf

["With the enactment of the 2001, 2002, and 2003 tax cuts, the federal tax code is now rife with tax cuts that are scheduled to expire between 2004 and 2010. If Congress makes all these tax cuts permanent — and there will be considerable pressure to do so — projected 10-year deficits will increase by $1.7 trillion. If Congress also amends the Alternative Minimum Tax so that no more than 3 million tax filers are subject to it in any year, the ten-year deficit could increase by another $760 billion."]

[Request #S8737]

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INCOME TAXES

"State Income Tax Burdens On Low-Income Families in 2002." By Nicholas Johnson and others. IN: State Tax Notes, vol. 28, no. 11 (June 16, 2003) pp. 981-991.

["Despite years of tax-cutting at the state level, poor families in many states still face a substantial burden as they file personal income tax from the 2002 tax year.... A majority of states continue to levy income tax on families with incomes at 125 percent of the poverty line. This analysis assesses the impact of each state's income tax in 2002 on poor and near-poor families with children."]

[Request #S8738]

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PROPERTY TAXES

Are State Governments Encroaching on the Local Property Tax? By Daphne A. Kenyon. IN: State Tax Notes, vol. 28, no. 30 (June 30, 2003) pp. 1149 - 1152.

["This article argues that the state fiscal crisis and the relative stability of property tax revenues are tempting state governments to encroach on the local property tax. Even more important, the school finance court cases that have swept the nation since the 1970s present an important threat to local property taxation."]

[Request #S8739]

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Will the Property Tax Become an All-But-Forgotten Relic of an Earlier Fiscal Age? By Dick Netzer, New York University. IN: State Tax Notes, vol. 28, no. 31 (July 7, 2003) pp. 30 - 36.

["Voters may have discovered that they hate income and sales taxes only recently, but they have always known that they hate and are oppressed by property taxes.... This presentation will focus on the extent to which the property tax does seem to be incongruent with economic changes, as well with the apparent public views about the legitimacy of the tax."]

[Request #S8740]

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STATE / FEDERAL RELATIONS

State Policy Reports: Federal Spending in the States. By the Federal Funds Information for States. FFIS State Policy Report. vol. 21, issue 9. (FFIS, Washington, DC) May 2003. 23 p.

["Federal spending significantly affects the growth of individual state economies.... Federal spending that can be traced to individual states includes direct payments, grants to state and local government, procurement, and salaries and wages.... The per capita distribution varies from $11,746 in Alaska to $4,940 in Nevada to $5,878 in California... The big winners are Maryland and Virginia, with their concentrations of federal, military, and civilian agencies, and New Mexico, with large defense and energy-related facilities... Other high-ranking states include Alaska and Hawaii with a large military presence relative to its population."]

[Request #S8741]

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STATE BUDGET

Teachers' Retirement Board, et al. v. Steve Peace, et al. California Supreme Court. Verified Petition for Writ of Mandate. July 7, 2003. 69 p.

Full Text at: www.strs.ca.gov/whatsnew/SBMAlawsuitcomplaint.pdf

["The California State Teachers' Retirement System asked the California Supreme Court to overturn a law that slashed (CALSTRS) $3.7 billion from the state's massive budget deficit, arguing that the legislative deal improperly deprived the pension fund of a $500 million payment....The payment funds a CalSTRS program that provides supplemental benefits for thousands of retired teachers. Enacted in May, 2003, SB 20 indefinitely deferred the pension fund payment as part of a deal to cut $3.7 billion from California's estimated $38.2 billion budget deficit." Sacramento Bee (July 8, 2003) D1.]

[Request #S8742]

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STATE TAXES

State Tax Collections and Rates. By David Hoffman, Tax Foundation. (The Foundation, Washington, DC) March 2003. 12 p.

Full Text at: www.taxfoundation.org/SR121.pdf

["By FY 1998, individual income taxes had overtaken general sales taxes as the single largest source of state tax collections.... In most years, state governments' tax collections have usually grown faster than their taxpayers' total income. However the growth rate of state taxes collections relative to personal income varies dramatically from state to state."]

[Request #S8735]

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Corporate Tax Sheltering and the Impact on State Corporate Income Tax Revenue Collections. By Multistate Tax Commission (The Commission, Washington, DC) July 15, 2003. 9 p.

Full Text at: www.mtc.gov/TaxShelterRpt.pdf

["Corporate tax shelters are creating as much as $12.38 billion in lost state tax revenue every year, according to the study by the Multistate Tax Commission. The group believes that a crackdown on corporate tax avoiders could help state agencies harvest a hefty bounty of additional revenue." Contra Costa Times (July 16, 2003) A1.]

[Request #S8743]

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State Business Tax Climate Index. By Scott Hodge and others, Tax Foundation. (The Foundation, Washington, DC) May 2003. 28 p.

Full Text at: www.taxfoundation.org/bp41.pdf

["The common characteristics of states that score poorly on the State Business Tax Climate Index are: complex, multi-rate corporate and individual tax codes that impose above-average tax rates at all levels of income; above-average sales tax rates that exempt few business input items; high overall state tax burdens and revenues that have grown faster than citizens’ incomes; and tax codes that impose considerable compliance costs on businesses. The ten states with the least hospitable business tax climates are Mississippi, California, Arkansas, Ohio, Nebraska, Hawaii, New York, Maine, Minnesota and Louisiana."]

[Request #S8744]

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Tax Growth Compared to Income Growth in Each State: Fiscal Years 1991 - 2001. By Tax Foundation. (The Foundation, Washington, DC) 2003. 1 p.

Full Text at: www.taxfoundation.org/taxgrowth.html

[Includes: "Average Annual Tax Growth 1991-2001;" "Average Annual Income Growth 1991-2001;" "Growth of Taxes Compared to Income FY 2000-2001;" "One-Year Tax Growth Rank FY 2000-2001;" and others.]

[Request #S8745]

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The New Sumptuary Laws: How Massachusetts Consumption Taxes Keep the Poor Poor. By Conelius J. Chapman Jr. IN: State Tax Notes, vol. 29, no. 1 (July 7, 2003) pp. 37 - 54.

["Consumption taxes are by their very nature regressive, burdening the poor whom governments seek to protect by other means. The Commonwealth of Massachusetts undermines its own efforts in this fashion by sales and excise taxes that fall disproportionately on the poor. Although the state's sales tax statute reflects some attempt on the part of legislators to exempt necessities from its scope, these exemptions have not kept pace with changing consumption habits."]

[Request #S8746]

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TAX REFORM

Tax Reform for Families: An Earned Income Child Credit. By Adam Carasso and others, Brooking Institution. Welfare Reform and Beyond Policy Brief no. 26. (The Institution, Washington, DC) July 2003. 8 p.

Full Text at: www.brookings.edu/dybdocroot/es/wrb/publications/pb/pb26.pdf

["This brief argues that the time is ripe for an integrated credit that combines the Earned Income Tax Credit and the Child Tax Credit into an Earned Income Child Credit (EICC). The proposed EICC simplifies and standardizes the definition of qualifying children and those who may claim them, and indexes the new credit for inflation so that it retains its purchasing power over time. The EICC also provides enhanced benefits to low-income working families and reduces marginal tax rates. One version would cost $6 billion relative to current law in calendar year 2003."]

[Request #S8747]

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Options for Revising the California Tax System. By the California Commission on Tax Policy in the New Economy. (The Commission, Sacramento, California) June 15, 2003. 56 p.

Full Text at: commerce.ca.gov/ttca/pdfs/link_overview/ersi/TaxComm_OptionsForRevisingCATaxSystem_6-23-03.pdf

["This report presents various options for changing California tax policy. For each option, the report provides background information, the type of action required for the proposal to be implemented (such as statutory, regulatory or constitutional amendment), and the effect of the proposed option on the balance of local and state authority. Then an analysis of pros and cons of the option is presented."]

[Request #S8748]

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TAX REVENUES

“A Bad Year: Fiscal Year 2002 Tax Revenue Summary. By Nicholas W. Jenny. IN: State Fiscal Brief, no. 67 (May 2003) pp. 1-7.

["The steep tax revenue declines in fiscal year 2000 have created major headaches in state capitols across the country. . . Adjusted for legislated tax changes and inflation, the revenue decline was 7.7 percent -- the worst decline in over a decade. [This report presents] year-over-year growth or decline for each state, before and after adjusting for the effects of legislated tax changes."]

[Request #S8749]

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TAXATION

"Value Added Taxes (VAT) Kick In, Headaches Begin." By Susan Kuchinskas. IN: Small Business Computing.Com. (July 2, 2003) Online.

Full Text at: www.smallbusinesscomputing.com/news/article.php/2230491

["A new European Union (EU) law asks U.S. merchants to pay the EU's version of sales tax on digital downloads.... The new statute bases the VAT on the buyer's location instead of the seller's. Now, the VAT tax is based on the laws of the country where the purchase is used, rather than where it originates. It also lets EU-based e-tailers off the hook for the VAT on sales made to consumers who don't reside in the EU.... The law covers only digital products like software, movies, games and e-books that are offered to consumers as paid downloads."]

[Request #S8750]

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Proceeding of Tax Roundtables, 2002-03. Compiled by Senate Office of Research. (The Office, Sacramento, California) June 2003. 130 p.

["With California's fiscal situation worsening and the state's tax system entering the center of the policy debate ... five roundtable discussions on tax policy were held beginning in the second half of 2002."]

[Request #S8751]

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TAXES

The Earned Income Tax Credit as an Instrument of Housing Policy. By Michael A. Stegman, Walter R. Davis, and Roberto Quercia, University of North Carolina, Chapel Hill. Prepared for The Brookings Institution (The Institution, Washington, DC) June 2003. 60 p.

Full Text at: www.brookings.edu/dybdocroot/es/urban/publications/stegmanhousing.pdf

["This paper examines the effect of the Earned Income Tax Credit (EITC) on housing-cost burdens currently and analyzes and contrasts three proposals to increase its impact as a housing tool. By any measure, severe housing expenses for low- and moderate-income households are on the rise; if included in income, the EITC significantly reduces critical housing needs for working households; all three proposals to expand and restructure the EITC would reduce the number of households with severe housing costs; the authors’ proposal would relieve severe housing-cost burdens for 510,000 families."]

[Request #S8752]

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Comparing the Total Tax Burden in each State to Just the State/Local Tax Burden: 1970-2003. By the Tax Foundation. (The Foundation, Washington, DC) April 2003. Various pagings.

Full Text at: www.taxfoundation.org/statelocal70-03.html

["For each state, the tables display total taxes as a percentage of income for each state to state/local taxes as a percentage of income, ranked in order, for the years 1971 to 2003."]

[Request #S8753]

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PREVIOUSLY IN STUDIES IN THE NEWS
[This section links to items in Studies in the News since the last Revenue, Taxation and Budgeting Supplement.]

"General Government." IN: Studies in the News, 03-45 (July 17, 2003).

[Includes: "Fiscal survey of states;" "Nevada court strikes two-thirds vote requirement;" "Child tax credit legislation;" "Effects of sales tax increase;" and others.]

[Request #S8754]

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