THE IMPACT OF CHANGES IN THE FEDERAL TAX CODE ON STATE TAX REVENUES

The direct effects of federal tax revisions likely to be legislated in 1985 among the states is examined, based on a simulation model of each state's income tax and the federal income tax structures. Three simulations were enacted on 1981 data using 1984 tax law. The simulations include: 1. the elimination of itemized deductions, 2. federal taxes expanded to cover employer contributions not taxed under present law, and 3. federal taxes expanded to transfer payment currently nontaxable. Three major conclusions are reached: 1. The total change in state tax liability relative to a federal change in liability differs widely depending on the type of the specific federal code revision. 2. The allotment among states of the effect of changes in federal tax revision is broad. 3. Federal tax revisions result in major income redistribution among taxpayers within states in addition to the redistribution of income related to the federal tax itself.