Personal Income Tax Revenue Growth and Volatility: Lessons and Insights from Utah Tax Reform

In order to reduce the volatility of the personal income tax in Utah, review and reform efforts recommended a simple flat tax that disallowed all deductions or exemptions. Among the reasons for the recommended flat tax was the argument that it would result in a more stable year-over-year tax revenue...

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Veröffentlicht in:Public finance review 2017-07, Vol.45 (4), p.458-483
Hauptverfasser: Cornia, Gary C., Johnson, R. Bruce, Nelson, Ray D.
Format: Artikel
Sprache:eng
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Zusammenfassung:In order to reduce the volatility of the personal income tax in Utah, review and reform efforts recommended a simple flat tax that disallowed all deductions or exemptions. Among the reasons for the recommended flat tax was the argument that it would result in a more stable year-over-year tax revenue stream. This was especially important for education financing. The tax system that was finally adopted retained exemptions and deductions through a tax credit. Using a series of simulations based on twenty-one years of tax returns, we establish that by retaining exemptions and deductions, tax reform efforts failed to appreciably reduce the volatility of personal income tax revenues. These simulations also show that the initially proposed flat income tax with no exemptions or deductions would have decreased volatility at the cost of reducing the growth rate. This study contributes insights, caveats, methodology, and potential alternatives for future individual income tax reforms by focusing on the growth and volatility of three different tax systems.
ISSN:1091-1421
1552-7530
DOI:10.1177/1091142116668255