How Would a State Know If it Is Making its Tax System More Regressive?
As long as current economic trends continue, states are likely to maintain healthy fiscal conditions. State revenue collections are growing because of a combination of low unemployment and strong returns on financial investments; the increased personal income and associated consumption translate into rising revenue for many states. Moreover, strong economies temporarily reduce the demand and the need for some social safety net programs. An additional although short-lived boost to state revenue may come from the 1997 reduction in the federal capital gains tax rate. To the extent the federal capital gains tax rate reduction persuades investors to cash in additional accumulated capital gains, a temporary rise in state capital gains tax revenue may occur over the next year or two. These additional revenues and reduced expenditures are likely to spur continued discussion of tax cuts in many states. Although most governors will not submit their budgets and tax proposals until early 1998, at
