Subject: Studies in the News 04-75 (November 15, 2004)

Studies in the News:
Revenue, Taxation and Budgeting Supplement

Contents This Week

Introductory Material GENERAL GOVERNMENT
   Federal responsibility for state fiscal crisis
   Cutting federal programs to help balance budget
   Competitive sourcing
   Transferable state income tax credits
   Corporate income taxes decline
   Fiscal crises in state governments
   Privatization, outsourcing, and government reform
   Property taxes in state and local finance
   Property tax referendums and elections
   State and local tax cases
   State and local taxes paid by the financial services sector
   State and local business taxation
   Comparative state/local taxes
   State expenditures for primary functions
   Revenue growth for states
   Insurance industry working group recommendations
   Taxation of insurance company dividends
   Tax policy in transition
   Falloff in corporate tax receipts
   Impact of the middle-class tax cuts
   Streamline sales tax process
   Factors for unemployment insurance rates
   Studies in the News, May - November 2004
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.

  • California State Employees may contact the State Information & Reference Center (916-654-0206; with the SITN issue number and the item number [S#].

  • All other interested individuals should contact their local library - the items may be available there, or may be borrowed by your local library on your behalf.

The following studies are currently on hand:



Facing the Fiscal Crisis in State Governments: National Problem; National Responsibilities. By Robert D. Behn and Elizabeth K. Keating, Taubman Center for State and Local Government, Harvard University. (The Center, Cambridge, Massachusetts) 2004. 33 p.

Full Text at:

["The report said Congress should enhance federalism in the coming century and should recognize that the states’ fiscal crisis 'is not a temporary blip that will disappear as the economy improves.' The deeper problem, according to the report’s authors, is caused by both the changing economy and by the evolving relationship between the states and the federal government."]

[Request #S4413]

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Downsizing the Federal Government. By Chris Edwards, By Robert P. Merges, the Cato Institute. Policy Analysis. No. 501. (The Institute, Washington, DC) 2004. 68 p.

Full Text at:

["Chronic mismanagement is a signal that the $2.3 trillion federal government is too big for Congress to oversee.... Along with a detailed list of cuts, this study proposes a framework to help policymakers determine which programs should be taken."]

[Request #S4414]

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Competitive Sourcing: Report on Competitive Sourcing Results: Fiscal Year 2003. By Executive Office of the President and the Office of Management and Budget. (The Office, Washington, DC) 2004. 29 p.

Full Text at:

["The Office of Management and Budget prepared this summary to highlight results achieved from the application of competitive sourcing (i.e. public-private competition) to the commercial activities of agencies tracked by the President's Management Agenda. The report describes promising trends and steps that will be taken to improve results where weaknesses have been identified. A snapshot of agency efforts undertaken in FY 2003 indicates that competitive sourcing is producing positive results."]

[Request #S4415]

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"Transferable State Income Tax Credits: Are They 'Property' or 'Tax Items' For Federal Tax Purposes." By Susan Kalinka. IN: State Tax Notes, vol. 33 no. 12 (September 20, 2004) pp. 849-852.

["This article addresses the different tax consequences that may result from the characterization of transferable state income tax credits as property or tax items for federal tax purposes and suggests that they should be treated as property."]

[Request #S4416]

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Corporate Income Taxes in the Bush Years. By Robert S. McIntye. Citizens for Tax Justice and the Institute on Taxation and Economic Policy. (Citizens, Washington, DC) September 2004. 72 p.

Full Text at:

["Some of the United States' biggest, most profitable corporations saw their federal income tax rates decline over the last three years, thanks to recent tax cuts, according to a Citizens for Tax Justice and the Institute on Taxation and Economic Policy." San Francisco Chronicle (September 23, 2004) 1.]

[Request #S4417]

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"Facing the Fiscal Crises in State Governments: National Problem, National Responsibilities." By Robert D. Behn and Elizabeth K. Keating. IN: State Tax Notes, vol. 33 no. 12 (September 20, 2004) pp. 833-839

["Two and half years after the 2001 recession ended, the states -- both individually and collectively -- face hard fiscal times. Despite an improving economy ... states must continue to deal with a large disparity between the expenditures required to provide the different services that different citizens seek and the revenues that their current tax structure produce."]

[Request #S4418]

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Annual Privatization Report: 2004. By Geoffrey F. Segal. Reason Foundation. (The Foundation, Los Angeles, California) 2004. 81 p.

Full Text at:

["[This report] helps policy and opinion makers understand the fast-moving arena of privatization, outsourcing, and government reform."]

[Request #S4424]

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"The Role of Property Taxes In State and Local Finance." By Judy Zelio. IN: State Tax Notes, vol. 34 no. 1 (October 4, 2004) pp. 43-53.

["The relationship between property taxes and state and local government services continues to change. Several years of surplus state revenue, along with voter dislike of the property tax, have resulted in major property tax reductions and led states to shoulder an increasing share of education costs. This report examines some of the implications for state and local finances of those changes."]

[Request #S4420]

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"November and the Rite of Property Tax." By Frank Shafroth. IN: State Tax Notes, vol. 34, no. 4 (October 25, 2004) pp. 273-277.

["Soaring housing values mean higher assessments which means high property taxes.... There appears to be a rising tide of resentment -- not at the increased value of the properties, but at the increased local property taxes."]

[Request #S4426]

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State and Local Tax At the Supreme Court - A Case of Constitutional Neglect? By Bradley W. Joondeph. IN: State Tax Notes, vol. 33 no. 12 (September 20, 2004) pp. 869-872.

["Rather than pursuing a particular policy agenda or establishing new, important principles of law, the Court seems to have used its state and local tax cases for the more mundane purpose of correcting lower-court errors."]

[Request #S4419]

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"Total State and Local Taxes Paid By the Financial Services Industry." By Andrew Phillips and others. IN: State Tax Notes, vol. 34 no. 2 (October 11, 2004) pp. 107-112.

["This analysis estimates the amount and composition of total state and local taxes paid by the financial services sector nationwide and provides a comparison with other major sectors of the economy."]

[Request #S4421]

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"State and Local Business Taxation: Is There a Better Way?" By Richard Mattoon. IN: State Tax Notes, vol. 34 no. 2 (October 11, 2004) pp. 101-104.

Full Text at:

["State and local business taxation still lacks clear direction according to conference discussions. Taxation is piecemeal and is not guided by any clear principle.... In an ideal world, business taxes should be restructured to more closely reflect the benefits that businesses receive from government."]

[Request #S4422]

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Comparative State/Local Taxes: Fiscal Year 2002. By Don Taylor. IN: State Tax Notes, vol. 34, no, 4 (October 25, 2004) pp. 249-271.

["The rate of increase in tax collection typically exceeds the rate of population growth. Therefore, per capita taxes usually increase from year to year and 2003 was no exception. Two factors influence the tax burden calculation in relation to income: the amount of state/local tax collection and the rate of growth in state personal income."]

[Request #S4431]

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State Expenditure Report: 2003 . By National Association of State Budget Office. (The Association, Washington, DC) 2004. 114 p.

Full Text at:

["This report reflects three years of data: actual fiscal 2002, actual fiscal 2003, and estimated fiscal 2004. The text of this report focuses on actual fiscal 2003 and examines the seven main functional categories of state spending."]

[Request #S4423]

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"No Big Surprise, State Tax Revenue Continues Recovery." By Nicholas W. Jenny, Nelson A. Rockefeller Institute of Government. State Revenue Report No. 57. (The Institute, Albany, New York) 2004. 15 p.

["Every region experienced revenue growth in the April-June quarter.... Corporate income taxes posted growth for two straight years. The sales tax continued strong steady growth."]

[Request #S4412]

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"California's Solution to the Taxation of Insurance Company Dividends: Part 1: Legislative History." By Philip M. Plant. IN: State Tax Notes, vol. 34 no. 2 (October 11, 2004) pp. 113-122.

["This article outlines AB 263's (chapter 868 of 2004) significant features and its effect on taxpayers. Following a brief overview of features, the author sets forth the history of the Ceridian controversy and discusses the legislative efforts to resolve its uncertainties. Special emphasis is placed on the actions of the ad hoc state/industry working group that ultimately formulated a mutually acceptable legislative solution through extended interaction leading to the development of an omnibus bill of extraordinary dimension."]

[Request #S4429]

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California's Solution to the Taxation of Insurance Company Dividends: Part 2: The Law. By Philip M . Plant, Plant Bauer Read and Smith, LLP. IN: State Tax Notes, vol. 34, no. 3 (October 18, 2004) pp. 173-179.

["California’s AB 263 (chapter 868 of 2004) is intended to resolve the uncertainties associated with the Ceridian decision by providing a partial deduction for dividends received by taxpayers with insurance subsidiaries ... AB 263 also contains provisions designed to discourage potentially abusive overcapitalization of insurance affiliates for income taxation avoidance purposes."]

[Request #S4433]

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National Tax Association Symposium: Tax Policy in Transition. IN: California Tax Journal, vol. 57, no. 3 (September 2004) pp. 513-777.

[Includes: "Revenues and Rules: Effects on the Federal Budget;" "Exploring Selected State and Local Issues;" "The Role of a Public Policy Economist: Lessons From Bruce Davie's Career;" "Effects of a Changing Pension Landscape on Saving;" "Corporate Tax Reporting and Compliance;" and others.]

[Request #S4425]

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The Effects of Replacing Most Federal Taxes with a National Sales Tax: A State-by-state Distributional Analysis. By Institute on Taxation and Economic Policy. Washington, DC) September 2004. 18 pages.

Full Text at:

["The study attempts to explain a sharp falloff in corporate tax receipts, which are at their lowest level in 20 years compared with the size of the economy, and which continued falling even as the economy rebounded in 2002 and 2003, according to the Congressional Budget Office." Washington Post (September 23, 2004) E02.]

[Request #S4427]

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Many Middle-class Families Likely to Wind Up As Net Losers From the "Middle-class" Tax Cuts. By Robert Greenstein and Isaac Shapiro. Center on Budget and Policy Priorities. (The Center, Washington, DC) September 21, 2004. 8 p.

Full Text at:

["Most middle-class families will have lower tax bills over the next several years if these tax cuts are extended than if they are allowed to expire. Yet, it is far from clear that middle-class families will be better off over the longer term. To the contrary, there is reason to believe that a majority of middle-class families could end up worse off."]

[Request #S4428]

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"Should the Multi-state Tax Commission (MTC) Run the Streamlined Business Registration System?" By Steven S. Woo. AND "Council on State Taxation (COST) Opposes MTC Operation of Streamlined Sales Tax Centralized Vendor Registration System." By Douglas L. Lindhom. IN: State Tax Notes, vol. 33 no. 13 (September 27, 2004) pp. 885-889; 970-971.

["The streamlined sales tax process -- which has brought together tax administrators, legislators, practitioners, businesses and other interested parties -- has been successful in large measure because it is likely to result in the most fundamental restructuring in state taxation in decades. Unfortunately, however, the Multi-state Tax Commission (MTC) and multistate business community do not have such a history of collaboration for mutual benefit. Consequently, the multistate business community, as represented by the Council on State Taxation, is nearly unanimous in its opposition to MTC operation of the centralized vendor registration system on an ongoing basis."]

[Request #S4430]

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"SUTA Dumping - The Latest Tax Shelter." By Kathleen K.Wright. IN: State Tax Notes, vol. 34 no. 1 (October 4, 2004) pp. 66-69.

Full Text at:

["To avoid higher unemployment tax rates, some companies have engaged in practices that have come to be known as SUTA (state unemployment tax) dumping, which involves moving employees to new companies with no experence rating.... New businesses are given a new employee rate that varies per state, with California, for example, at 3.4 percent. Companies stay on that rate in California for up to three years."]

[Request #S4432]

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[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 04-37 - 04-72 (May - November 2004)

[Includes: "Local government and tax revenue;" "State tax credits;" "State and local revenue systems;" "Local government finance;" "City fiscal conditions;" "Tax incentives ruled unconstitutional;" "California performance review and tax commission;" "Raising revenue from gambling;" "Tax revenue on VOIP;" "Proposition 13 and Serrano;" "State tax revenues;" "Fiscal crises in state governments;" "Effects of taxes on economic development;" "State income tax burdens on low-income families;" "States' sluggish fiscal year;" "Cities rely on sales tax revenues;" "Federal mandates impact state budget deficits;" "Taxation of software sales;" "Disparities in commercial property taxes;" and others.]

[Request #S4434]

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