The State Tax Complexity Index: A New Tool for Tax Reform and Simplification

By / 4.9.2014

Across the political spectrum there is broad agreement that tax reform is long overdue. Yet reform remains an elusive goal—not just in Washington, but also at the state level. Ideological standoffs, the excessive influence of special interests, the impending midterm elections, and mistrust of government are just some of the road blocks to reform.

This policy report undertakes a unique examination and comparison of the complexity of all 50 state tax systems plus the District of Columbia – the State Tax Complexity Index (“Index”). The Index measures complexity in terms of the number of tax expenditures for each state revenue system and highlights several findings that are relevant to the national tax reform debate.

The report includes a short history of state income tax systems and demonstrates the shortcomings in state income tax systems across different systems and taxation methods. Weinstein comments:

State tax systems tend to mirror the flaws so evident in our federal tax code: they are regressive, economically distorting and absurdly complex.

He continues:

“Although some continue to argue for a national sales tax or ‘flat tax,’ our study shows the best way we can promote simplicity in state tax codes is to eliminate cumbersome and seldom used tax breaks. Eliminating these breaks would reduce complexity, increase government revenue and finance lower tax rates across the board. Doing so would also increase fairness, as most breaks only benefit higher-income individuals and businesses.”

Read the full brief, including the index, here.