Measuring Fiscal Effort and Fiscal Capacity: Sorting Out Some of the Controversies

摘要

The report covers several topics related to the measurement of the fiscal capicity and effort of states and localities. Major conclusions include the following: (1) The choice between per capita income and RTS (Representative Tax System) does have a big effect on the relative fiscal capacity of numerous states, primarily because RTS recognizes that taxation of energy production affords the opportunity to export burdens to nonresidents; (2) Deductions for state and local taxes claimed on federal income tax returns provide a useful indicator of relative tax burdens among states. (3) An ideal measure of tax capacity would consider a state's personal income, the net worth of residents, and its ability to export tax burdens. (4) States could greatly improve the way in which they treat tax capacity in their formulas for distributing aid to local governments.