Passive Tax Expenditures: Estimates of States’ Revenue Losses Attributable to Federal Tax Expenditures
Modern politics obligates U.S. presidents and presidential candidates to assert a commitment to tax reform. All nod in that direction; some create a spasm of reform fervor among the national leadership. Reform advocacy is bolstered by greater or lesser expression of outrage with the lunacy of particular loopholes in an incentive-destroying tax system. The polity is titillated by the display. New preferential tax treatments are devised by each Congress, and a very few minor ones are terminated. The "tax expenditure budget" grows each year, usually at a pace more rapid than the growth rate of appropriations. Eventually a new round of lamentations begins, and mostly, nothing changes. While these observations are not uncommon, and the events are barely remarkable any longer, another aspect of this situation passes almost completely unobserved, rather remarkably considering the persistent attachment of Americans in general, and officials of state governments in particular, to decentralized, federalist structures and "states rights." This aspect is the loss of state tax revenue that occurs because state governments tie their income tax systems to that of the