Electronic Thesis/Dissertation


A Comparative Case Study of Tax Policy Decisions in the District of Columbia, Maryland, and Virginia Open Access

This dissertation examines how state policymakers develop, evaluate, and select tax policy options, based on case studies of tax policy decisions in the District of Columbia, Maryland, and Virginia from 2007 to 2010. States have been the main locus of tax policy change in the U.S. in recent years, varying widely in their choices of which taxes to raise or cut, and whether to adjust tax rates or the tax base. Because public finance and budgeting research has focused largely on appropriations, as well as tax decisions at the federal level, the dissertation seeks to expand the knowledge base about state tax policy formulation. This is a critically important policy area because state tax systems are threatened by the growth of services, the advent of electronic commerce, capital flows that cross state and national borders, and the aging of the population.Based on a mixed-methods research strategy involving documentary evidence as well as interviews with 10 to 15 key policy participants in each state, the dissertation found that the three states vary widely in their capacity to generate and refine tax policy options, reflecting ideological and institutional differences. Nevertheless, the states were very similar in one respect: each state made only tangential efforts to expand its tax base and curtail tax expenditures during the worst fiscal crisis in decades. This pattern suggests that it will be difficult for states to carry out the reformers' mantra to broaden tax bases and lower tax rates, a conclusion that is supported by national data.The case study states also relied heavily on "selective parity" - aligning their tax rates and tax bases with at least some neighboring jurisdictions or comparable states - in making tax policy choices. This practice suggests that states will avoid the gridlock that has marked federal tax policy, because the widespread use of benchmarking provides a rationale for tax increases as well as cuts, while still serving as a moderating factor that pulls states toward regional or national means. States are picking spots on a spectrum of service levels and tax burdens that reflect voter preferences but are also constrained by national and regional norms.A general hierarchy of taxes constructed from the case studies and also reflected in national data shows that narrowly-targeted levies (such as health facility taxes) and "sin" taxes (such as cigarette taxes) were the most likely to be increased, while broad-based taxes with the strongest revenue performance (such as the personal income tax) were the least likely to be increased. This pattern reinforces the conclusion that states are neglecting the long-term revenue capacity of their tax systems, a finding that is reinforced by a continuous stream of small tax cuts granted in each state, interrupted periodically by larger tax increases - a pattern of "punctuated incrementalism."

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