The Tax Reform Act of 1986--Its Effect on Both Federal and State Personal

Home , Tax Reform Act of 1986

The Tax Reform Act of 7986- Its Effect on Both Federal and State Personal Income Tax Llablllties

January 1988

Preface and ~cknowled~menteI

The federal Tax Reform Ad of 1086 was gregate state personal income tax liabilities. the most significant restructuring of federal This Staff Information Report extends the tax policy of the postWorld War 11 period. Its analysis to consider the state-by-state effects impact was felt not only on federal tax liabili- of federal tax reform on federal and state tax ties but also on state income tax systems. liabilities of taxpayers in various income With the assistance of a grant &om The classes, and the effects of four different group Ford Foundation, the Advisory Commission ing~of pxwisions of the act. on Intergovernmental Relations undertook a Under contract with ACIR, the Policy study of the fiscal effects of federal tax dorm Economics Group (PEG)of Peat Marwick on state and local governmentseven before en- Main & Co. prepared the estimates. ACIR de- actment of the legislation. In December 1986, signed the project and reviewed the estimates the ACIR hued its first StaEInformation Re- in consultation with state tax officials. port on the subject: Pdiminury Estimatee of On the ACIR side of this effort, John Shan- the Eff& of the IS86 Feded Tax Reform Ad on State Personal Income Tax Liabilities. This non, former Executive Director, deserves report examined the bkages between the fed- credit for supexvising much of the work on eral and state income tax systems and pre- this project during 1986 and 1987. Carolyn sented estimates of the changea in total state Lynch deserves special recognition for her me- personal income tax liabilities. Since publica- ticulous superviaion of the preparation of the tion of that report, two other working papers estimates and the preparation of the previous have been prepared; one, dated April 1987, two reports. Susannah E. Calkins was reepon- summarized then current studies on tax re- sible for preparing this report for publication. form and its potential effect on state income At the Policy Economics Group, Harvey T. tax revenues, and the other report, dated Galper and David Wentworth demve special August 1987, gave preliminary estimateg of mention for their work in preparing the tables provision-by-provisioneffects of the act on ag- and analysis for this report. John Kincaid Acting Executive Director

contents 1

Changer in State hamme Taxer ...... StateLinkagetoAGI ...... Other State Ihkagw to the Federal Tax Code ...... Dropping Low-Intome Filers from the RoIla ...... The Fed& Experience ...... ' ...... TheStateExperience ...... AppendixA Sample and Methodology ......

TABLES Tcrble 1 Effectr of The Tax Refbrm Act of 1886 on Aggregate Federal and State Tax Liabilitier. by Income Clarr ...... Table 2 Effects of The Tax Reform Act of 1986 on Aggregate Federal and State Tax Liabilities. by Provision ...... Table 3 Aggregate Number and Percentage of Taxable Federal and State Returns Made Nontaxable by The Tax Reform Act of 1986 ...... Table 4a Effects of The Tax Reform Act of IS86 on Federal Tax Liabilities. by Income Class. by State (in millions of dollars) ...... Table 4b Effects of The Tax Reform Act of 1986 on Federal Tax Liabilities. by Income Class. by State (in percent changes) ...... Table 6a Effects of The Tax Reform Act of 1986 on Federal Tax Liabilities. by Provision, by State (in millions of dollars) ...... Table 6b Effects of The Tax Reform Act of IS86 on Federal Tax Liabilities. by Provision, by State (in percent changes) ...... Table 6cr Effects of The Tax Reform Act of1986 on State Tax Liabilities, by Income Class, by State (kr millionr of doh)...... Table 6b Effects of The Tax Reform Act of $986 on State Tax Liabilities, by Income Class, by State (in percent ahanger) ...... Table ?a Effects of The Tax Refbrm Act of 1986 on State Tax LfabWtier, by Provision, by State (in millions of doh)...... Table 76 Effects of The Tax Refbrm Act of 1986 on State Tax Liabilities, by Provision, by State (in percent changes) ...... Table 8 Number and Percentage of Taxable Federal Returnr Made Nontaxable by The TaxRefom Act of I886 ...... Table 9 Number and Percentage of Taxable State Returns Made Nontaxable for State Income Taxes, by State Vor states which have enacted changer to utandard deductions and personal exemptionr, am of October 1987) .... Table 10 Additional Number and Percentage of Taxable State Returnr Made Tezable for State Income Taxes If States with Standard Deductions and Personal .Exemptions Increase Those Amounts to New Federal Levels, rrrr of October 1987 .... Table AI Estimates of Original Distribution of SO1 Sample, by State ...... Table B1 Effects of The Tax Reform Act of 1986 on Federal Tax Liabilities, by Income Class, by Region ...... Table B2 Effects of The Tax Reform Act of 1086 on Federal Tax Liabilities, byProvision,byRegion ...... Table BS Effects of The Tax Refonn Act of 1986 on State Tax Liabilities, byIncomeClass,byRegion ...... Table B4 Effects of The Tax Reform Act of ID86 on State Tax Liabilities, byProvision,byRegion ...... Table B6 Number of Taxable Returns Made Nontaxable by The Tax Refonn Act of lfi86,by Region (in thousands) ...... The Tax Reform Act of 7986- Its Effect on Both Federal and State Personal Income Tax Liabilities

The 15months between October 1986 and The analysis presented here is based on December 1987 have been an unusually busy computer simulations of federal and state per- period for work on tax policy by the federal sonal income tax liabilities using the Policy government and many state governments. On Economics Group's federal and state personal October 22, 1986, President Ronald Reagan income tax model and data base. This data signed into law The Tax Reform Ad of 1886, base is similar to the one used by the Depart. the most significant restructuring of the fed- ment of the Treasuxy and $he Congressional eral income tax law in the post-war period, if Joint Committee on Taxation. The basic not since its inception in 1913. Partly in re- structure of the data base is derived from a sponse to this legislation and partly for inter- statistical merge of a aample of federal income nal policy reasons, a number of states also tax returns and the Cufient Population Sur- have reformed their personal income tax sys- vey of the U.S. Census Bureau. A description tems substantially since 1986. of the sample and the methodology is in Ap This report presents in detail the affects of pe& A. the federal personal income tax changes on taxpayers in each of the 50 states and the Dis- The Tax Reform Act Provisions trict of Columbia. AU major changes in personal income tax provisions, as Wyphased The first rdtspresented are simulations in, are included. These federal tax changea of the Policy Economics Group's federal tax have two effects: the direct effects on federal model of all the federal tax changea enacted in tax liabilities for residents of each state, and The Tax RefomAd of 1986when Wyphased the indirect effects on state tax liabilities for in. Although full phase-in does not occur for

+ those taxpayers, due either to state income tax five years in some cases,the dtsare an at- linkages to the federal income tax or to tempt to capture the distributional effects of changes in taxpayer behavior induced by fed- the new law when it becomes fully effective. eral tax reform. The indirect state tax changes The 1986 act changed almost every major are those that would occur if the states main- provision of the individual income tax law. To tained their linkages to federal law, but took give some order to the analysis, this report no direct legislative action in response to fed- breaks out four separate groupings of these eral tax reform. provisions. Many states changed their personal income tax laws in 1987, in some cases substan- Itemized Deductions (Group 1): tially revising their tax bases and tax rates. Elimination of the deduction for state * The particular changes considered in this re- and local sales taxes paid, restrictions port are the changes in personal exemptions on the medical deduction, limitations on and standard deductions that determine the the nonbusiness interest deduction, incomU level at which state income taxes be- changes to employee business and mov- come due. ing expense deduction, and the limita- tion on miscellaneous itemized deduc- dle income class ($20,000 to $50,000) receivw tions. a sizable decrease in liability, again mostly for Standard Deduction and Exemp- the same reasons (changes in exemptions), but tions, etc. (Group 2): Changes in per- the percentage decrease for this class is less sonal exemptions, the standard deduc- than for the $10,000 to $20,000 class. The up tion, and the earned income credit. per-middle income class ($50,000to $100,000) tax Rat- (Group 8): Changes in tax rates, receives much less of a break. The higher including the standard 15 and 28 per- mdard deduction helps them a little, but cent rates and the 6 percent surcharge the exemption change is less valuable to them resulting *om the phaseout for higher in percentage Germs. The tax rate cuts are not income taxpayers of the benefits of the as significant in this income range as they are 16 percent bracket and the personal ex- in the highest income class. emptions. The upper income class (wer $100,000 AGI) eqjoys a substantial tax savings, due al- Other Changes (Group 4): Repeal of full taxa- most entirely to the reduction in marginal tax the dividend income exclusion, rates (Group 3). The benefits of reduced tax tion of unemployment compensation, rates are heavily concentrated in the highest elimination of the two-earner marriage class deduction, restrictions on individual re- income where marginal rates decline by tirement account deductions, changw almost half, hm50 percent under the old law in depreciation rules, limitations on to 28 percent. In the middle income classes, passive losses, repeal of the investment top marginal rates decline much more mod- tax credit, repeal of the political contri- estly, in general by less than a quarter, &om a butions credit, elimination of the capital range of 38 percent to 48 percent to a marginal gains exclusion, and changes in the al- rate after tax reform of 33 percent, including ternative minimum tax for individuals. the surcharge. The results for the lowest income class Tables 1 and 2 present national figures for (less than $10,000) are due to the fact that this both federal and state liabilities. Table 3 pre- income class is a mixture of at least three sents aggregate data on federal and state re- types of people. They are: (I) truly low-income _ turns made nontaxable as a result of legislated individuals, (2) individuals who have low in- tax changes. Tables 4 through 10 give state- come on their own returns, but who are part of by-state data. Appendix B presents regional higher income fRmilies (mostly college stu- summaries in Tables B1-B6. dents), and (3) very wealthy individuals who have tax shelters generatinglossesfor tax pur- Changes in poses and low AGI. The group enjoys a Federal Income Taxes first substantial tax savings, while the second and third groups see their taxes rise. Thus, the re- Changes by Income Class ault for this income class in the nation as a Federal income tax changes by income whole is a decline of only 5.4 percent. class are presented in Table 1 (for national fig- The results for the lowest income class ures) and TcrbZe4 (for state-by-statedata). The vary by state, depending on the relative pro- income classes are defined in terms of adjusted portion of these three groups in that state (Ta- gross income (AGI) under prior federal law. b& 4). In a number of states, this income class The results for the five income classes above actually has a large increase in tax liability $10,000 of AGI are considered first. Federal (e.g., Connecticut, New Jersey, Illinois, tax liability for returns with incomes *om Michigan, and Arizona), due primarily to $10,000 to $20,000 declines substantiallypri- the provision of The Tax Refonn Ad that re- marily as a result of the increases in personal stricts the use of passive losses against other exemptions, the standard deduction, and the income. To a large degree, this provision af- earned income credit. (This set of provisions is fects people with negative AGI under prior shown in Tables 2 and 6 as Group 2.) The mid- law. Changes by Provbion items that are linked to pre-1981 federal law and that can be considered to be eesentially Other variations in total federal liability unlinked to federal law. There are three basic by state are shown in Table 6. In general, types of state coupling to federal law: to AGI, those states with higher income profiles are to taxable income, and to tax liability. In addi- helped more in percentage terms by the rate tion, state itemized deductions may or may change than by changes in the standard de- not be coupled to federal law, and the ability of duction, exemptions, and the earned income taxpayers to itemize for state tax purposes credit. For states with lower income profiles, may or may not be based on federal itemizing the reverse is true. For example, Connecticut, status. a high-income state, receives only a 7.2 percent benefit from changes in the standard de- State Unkage to AGI duction exemptions, and the earned income The most common form of statefederal credit, but receives a 16.0 percent benefit from coupling is a linkage to AGI, often accompa- rate change9;while Maine, a state with much nied as well by a state linkage to the dollar lower incomes, benefits more hmthe deduc- amount of federal itemized deductions. A tion and other changea than rate change^ number of states nominally link to taxable in- (12.9 percent to 9.0 percent). come, but many of thew states make Gust There is also some variation by state in the mats for diff'ences in state and federal de- dtsof change9 in itemized deductions, deductions and exemptions. With AGI coupling, pending primarii on the level of itemizers the state's tax base is expanded but rates re- within the state and whether or not the state main unchanged, hence the 'windfallw to the has a high sales tax rate. For example, the five state hmfederal tax reform. All the states states with no sales taxes each have levels of with more than a few percentage points of impact for this provision below the national windfall are states whose primary coupling is average of 5.6 percent: New Hampshire, 8.1 to federal AGI. percent; Delaware, 8.3 percent; Montana, 4.6 Within the group couplingto AGI, there is percent; Oregon, 4.5 percent; and Alaska, 4.3 a very wide range of effects (Tables 6 and 7). percent. Four states have windfhlls of over 20 percent It is vay difficult to make other usem (Colorado, Kansas, Louisiana, and New Mex- generalizations about the federal tax changes ico). New Mesico is unique. It has a tax eystem by state. The impact of the other prwisions with very large tax credits, which help to dis- presented in Group 4 (particularly passive tribute money from upper income taxpayers to losses and capital gains) vary significantly by lower income taxpayers. The New Mexico tax state, and these variations overshadow the collects about $800 million without credits more predictable results for the other groups. and allows about $90 million in credits. The tax credits are basically unatTected by the cou- Changes In pling to federal law; hence, tax reform in- State Income Taxes creases collections but does not significantly In the absence of direct legislative action, change tax credits. Because of the lawcred- state income taxes would change as the result its, the base of state liability on which the of federal income tax reform. These changes in change due to tax reform is calculated is artifi- state income tax liability are presented in T* cially low, resulting in the very high percent- bles 6 and 7. Differences among states reflect age change for this state. both structural variations in state tax law and The other three states with over 20 per- differences in the mix of taxpayers from state cent increases in liability (Kansas, Louisiana, to state. and Colorado) couple to both AGI and item- In broad terms, states can be classified by ized deductions, and also have a deduction for their type of coupling to federal tax law and by federal taxes paid. Furthermore, these three their policy governing the deductibility of fed- states do not explicitly decouple from any ma- eral taxes paid. For every state where coupling jor provisions affected by tax reform, nor do exists, we have assumed that the coupling is they have minimum taxes (which would miti- automatic to new federal law, except for a few gate the impact of taxing long-term capital gains in full). hostevery provision of fed- amount of other exemptions or the standard eral tax reform affects these states. deduction, there is no such offset at the state At the other end of the spectrum are tho88 level. Furthennore, in those states that limit states that couple to federal AGI but experi- itemizing to federal itemizers, there is some ence a windfall of less than 6 percent. These loss of itemizing status without an increase in statea do not allow the deductibility of federal the standard deduction amount (although this taxes paid, and they tend to decouple explic- effect is more pronounced in the middle in- itly from one or more major provisions of fed- come classes). eral law that are affected by tax reform. This For these same states that couple to fed- group includes Massachusetts, Illinois, Indi- etral AGI, the middle income clam usually ma, and Wisconsin. Massachusetts does not hemuch better than the highest income allow deductions for the dividend income ex- class, again the reverse of the federal impact, clusion, the two-earner marriage deduction, although the variability among states is sub- or Individual Retirement Accounts (IRAs), stantial. The upper income class hces a larger and it already provides a smaller exclusion for tax increase primarily as a result of the IRA long-term capital gains than prior federal law. and the capital gains provisions. IRA deduc- The other states have similar provisions. Illi- tions are denied only for higher income re- nois, with its low, single rate, taxes capital turns, and a large percentage of total capital gains in full. Indiana decouples hmthe two- gains is concentrated in those same income earner deduction and does not allow itemized classes. deductions. Wisconsin decouples &om the Capital Gains. To illustrate the impor- two-eamer deduction. tance of capital gains, Illinois is one of the few states coupled to AGI for which the upper in- Effects of AGI Coupling by Income come class is less affected than the middle in- Class. For nearly all states that couple to AGI come classes (a 1percent decrease in the state (but not to the dollar amount of exemptions or income taxes for the highest income class com- the standard deduction),the distributional ef- pared to a 2 to 4 percent increase for the mid- fects of federal tax reform on state income dle income classes-see Table 6). Since Illi- taxes is almost the reverse of the effects on nois already taxes capital gains in hll, there is federal income taxes (Table 6). In general, no increase in the state tax base as a result of state taxpayers in the lowest income class (un- the federal capid gains provision. The de- der $10,000) in these states have very large cline in state tax liability in the highest in- windfall tax increases. As discussed above, come class occurs because of the behavioral re- this class is a mixture of rich people, poor pee sponse to federal tax reform: higher federal ple, and college students. For most states that taxes on capital gains reduce realizations and couple to federal AGI, state taxes increase for thus state liabilities if state tax laws are not all three groups while federal taxes increase changed* for only the rich and for college students. This result for low-income taxpayers is not Other State Linkages to the surprising. Broadening the state tax base Federal Tax Code without making corresponding changes in The remaining states fall into four catego- rates or in personal exemptions or the stan- ries, namely states that: (1) couple to federal dard deduction will have its most severe im- taxable income, (2) couple to federal tax liabil- pacts on the poor. Also, most states that cou- ity, (3) have limited income taxes, or (4) do not ple to AGI tend to follow the federal rules re- couple at all (or in a very limited way) to fed- garding the number of allowable personal ex- eral tax law. Only two states effectively couple emptions. Thus, not only college students but to federal taxable income, Idaho and South also the elderly and the blind, most of whom Carolina, and bdth exhibit very small changes are in this lowest income class, lose their state in liability (Table 6). The base broadening is exemptions as a result of federal tax reform. more or less ohtby the change in the dollar Whib' at the federal level this loss is at least amount of exemptions and standard deduc- partially offset by an increase in the dollar tions. It is worth noting that in these states the lowest income class does not face a siBnifi- Tho State Experience cant tax increase as occurs in states thatcou- Many states, either for internal policy rea- ple to federal AGI. oons or in response to federal tax reform, Those states which are linted directly to changed their own tax laws in 1987. Table 0 federal liability (Rhode Island, Nebraska, and shows that aver 1,300,000 state tax returns Vermont plus North Dakota where taxpayers were made nontaxable as a result of changeg to can choose between a percentage of federal li- state tax law for those states which in 1986 al- ability and a tax calculation based on federal lowed personal exemptions or standard deduc- AGI) all experience a percentage decline in tions and changed those proviaions as of Octo- state tax liability roughly equal to their de- ber 1987. Note that married couples filing clines in federal tax liabilities. separately for state purposes who filed jointly Three states have very limited income for federal purposes (i.e., income splitting re- taxes-Connecticut, New Hampshire, and turns) are counted as one return in Table 0 Tennessee. Connecticut taxes only interest, and 10. A set of notes to Table 0 indicates the dividends, and capital gains. The other two changes in state tax law that were simulated. tax states only interest and dividends. New In almost every case, the state law changes Hampshire and Tennessee experience tax increase the standard deduction or the per- losses due to behavioral shifts in interest in- sonal exemption, dtingin some returns become and interest expenses in response to fed- coming nontaxable. Utah is the one exception eral tax reform. Connecticut has a tax in- to this trend; it lowered its standard deduc- crease because its law is linked to the federal tion and thereby increased the number of tax- definition of long-term capital gains and to the able returns. Wisconsin's tax change causes definition of federal AGI in determining tax- some nontaxable returns to become taxable payers subject to tax within the State. and some taxable returns to become nontax- States with no (or vexy limited) coupling able, but the latter effect is substantially to federal tax law tend to have only vay small greater, redting in a net decrease in the changes, usually a decline in their tax liabili- numb@ of taxable returns. ties. New Jersey and Pennsylvania,for exam- Table 10 indicates that an additional ple, have a decline of 2.4 and 1.2 percent, re- 3,660,000 state tax returns would be made spectively, because of behavioral responses to nontaxable if those states that had standard federal tax reform, notably in capital gains deductions or personal exemptions in 1986 and passive losses. were to adopt the new federal dollar amounts Dropping Low-Income Filers for these p&visions. (The extra federal stan- From the Rolls dard deduction for the aged and the blind is not included.) For those states currently using The Federal Experience a percentage standard deduction (usually ex- Table 8 shows that over 4,400,000 federal pressed as a percent of AGI), the provision was tax returns were made nontaxable as a result replaced with a flat standard deduction equal of tax reform. The three mdor provisions that to the federal amount. Since nearly all state cause returns to become nontaxable are the standard deductions or personal exemptions increase in exemptions, standard deductions, are less generous than federal law, a shift to and the earned income credit, which together the federal rules generally increases the num- were presented as Group 2 in Table 6. The ber of nontaxable returns. For these few states states with the highest percentage of returns which have standard deductions or personal made nontaxable are those with a relatively exemptions in excess of federal levels, such as large proportion of low-income persons, such Louisiana and Wisconsin, a change was not as Mississippi, Tennessee, and South Dakota. simulated. Table 1 Effects of The Tax Reform Act of 1986 on Aggregate Federal and State Tax Liabilities, by Income Class On Federal On State Income Clau Tax Uabllttler TW Uabllltle8 (In mllllons of dollars) Lesm than $10,000 $ -124.6 $801.8 $10,000-$20,000 -8,751.5 279.8 SzO,~-~O,OOO -8,815.7 430.8 $80,000-$50,000 -9,351.9 1,294.5 $60,000-$100,000 -4,736.8 1,878.8 Over $100,000 -14,154.1 1,495.1 AU Clrurer $45,932.9 $ 6,187.8 (In percent changes) Lser than $10,000 4.4% 84.8% $10,000-$20,000 -EL3 4.8 $20,000-150,000 -8.8 4.7 $30,000-W,000 -9.6 6.2 $60,000-$100,000 4.6 8.3 Ovsr $100,000 -14.0 9.1 AUCh~mea -10.1% 7.4% Note: Figures taken hmTables 4 and 6. Detail may not add to totals because of rounding.

Table 2 Effects of The Tax Reform Act of 1986 on Aggregate Federal and State Tax Liabilities, by Provision On Federal On State Tax Uabllttler Tax Uabllttler (In mllllons of dollars) Group 1: Changes in itemized deductions $21,183.7 Group 2: Changes in personal exemptions, standard deductions and the earned income credit -36,861.7 Group 3: Changes in tax rates -48,824.0 Group 4: All other changes* 28,569.1 Total $ -55,932.9 (In percent changes) Group 1: Changes in itemized deductions 5.6% Group 2: Changes in personal exemptions, standard deductions and the earned income credit -9.2 Group 3: Changes in tax rates -13.3 Group 4: All other changes* 8.0 Total -10.1% Note: Figures taken from Tables 5 and 7. Detail may not add to tatals because of rounding. 1Repeal of the dividend income exclusion, full taxation of unemployment compensation, elimination of the twmer marriage deduction, restrictions on individual retirement account deductions,changes in depreciation rules, limitations on passive losses, repeal of the investment tax credit, repeal of the political contniutions credit, elimination of the capital gains exclusion, and changes in the alternative minimum tax for individuals. Table 3 Aggregate Number and Percentage of Taxable Federal and State Returns Made Nontaxable by The Tax Reform Act of 1986

Federal Returns 4,437.0 6.8% State Raturns- for states enacting changes as of October 1987 additional effect of increasing all standard deductions and personal exemptions to federal amounts Table 4 Effects of The Tax Reform Act of 1986 on Federal ~w'UabilRies. by Income Class, by State (in million8 of dollars) -me Clam (thousands-

Uaikd 8t.k. Now Emgland Qnndt Maine Ihbaachm New EIamplhire mode Ud vennont Midurt Delaware Wmhingbn, DC md New Jew New York Peanrylvania Q&L.Ltm Illinoim Indiana Michigan Ohio Whxuin Pkfnr Iom lbnuu Minnesota MiMouri Nebmka North Dakota South Dakota southenst Alabama Mranrar Florida Georgia Ibntudcy Inuimiana Mirriippi North Carolina south Carolina Tenneesee Virginia West Virginia Southw& Arizona New Mexico Oklahoma Texan Rocky Mountain Colorado Idaho Montana Utah Wyoming Far We& California Nevada Oregon Wmhington Alaska Hawaii Note: Detail may not add to totals because of rounding.

-8- Teble 4b Effects of me Tax Reform Act of f986 on Federal Tax Uabilities, by Income Class, by State (in percent changes) AncomeClam fthousand8)-, Undw 10 -6.4% 4.0 20.7 -9.0 -U.8 -83 46.2 -1Pi.l 2.1 4.0 407.1 10.2 2s.2 -0.9 -16.0 8s.l 81.6 -25.1 22.4 -9.6 4.6 -%lb -ls.8 4.8 -40.6 -12.8 -20.9 1.6 -728.6 43.6 42.0 4.1 4.7 -61.6 39.9 -26.7 66.6 43.0 -229.8 -76.6 0.2 -70.1 -17.6 15.9 -49.4 49.5 -20.4 -253 -13.1 -29.7 -42.0 -41.4 4.4 9.7 5.2 -66.2 -56.6 7.6 22.9 13.2 Teble 5a Effects of The Tax Reform Act of 1986 on Federal Tax Liabilities. by Provision, by State (in million8 of dollam)

~ovf8lom- - 2 a Ch8flg.8 h Changer In Penonal Exemptionr, Itemizod Standard Doductlon. and Change8 In Deductlonr TuRater Unikd8t.k. $21,183.7 New England Connecticut Maine MaUachauttr New Hampahim Rhode Inland Vermont Michut Delawlm washington, M: Ud New Jew New York p-4

Pkfiu Iowa Ihnrclr Misrouri Nebrruka North Dakota South Dakota Soutilomt Alab8ma Arlranrar Florida bgia Kentucky Lauiriana hierippi North Carolina south Carolina Tennemsee vii we& Virginia South- hna New Mexico Oklahoma Teuu Roc Mountain %lorado Idaho Montana Utah wyomine Far Wed Caifornia Nevada Oregon Washington Alaska Hawaii . Note: Detail may not add to totals because of rounding.

Teble 6b Effects of The Tax Reform Act of 1986 on State Tax Uabilities, i by Income Class, by State (in percent changes) AncomeClau (thourand8)-, 10-20 20-30 90-50 Over 100 Totd 4.8% 4.7% 6.2% 83% 9.1% 7.4% 0.6 0.8 0.5 1.4 .. 0.7 -63 as3 57.7 165 10.6 11.1 N&= 9.1 9.5 11.5 10.6 143 11.6 Maine 13 1.1 1.1 0.9 6.2 0.8 Mo8Mch- ** ** -2.5 ** *+ -0.4 New HnraPdlire (a) -15.9 -8.1 -18.0 4.6 -16.8 -116 mm&Lknd 4.2 -93 -12.8 -8.9 -11.9 -9.9 Vermont 4.8 4.1 5.1 6.9 86 6.8 AIidrut 8.7 4.1 5.8 6.9 17.9 9.6 Ddawam 86 6.4 6.1 11.0 16.6 10.2 wwn,Dc 6.2 6.7 6.7 8.0 10.9 7.7 4.5 -1 .2 -0.7 -1.0 -6.7 -2.4 New Jrcry 8.6 6.6 7.4 9.9 11.4 9.4 NwYork 4.6 4.9 43 -1.8 4.6 -1.2 m.1 6.4 2.7 9.6 4.6 70 63 86.7 6.7 2.7 2.2 43 -1.0 8.6 lS.6 1.6 1.4 1.8 8.1 7.6 2.7 sna 8.4 8.4 1.6 a3 11.9 7.1 as3 6.1 2.8 46 8.0 u3 7.4 614b 8.8 2.6 8.1 8.6 8.0 8.4 22.2 6.9 7.8 9.9 U.8 a46 12.6 -8.1 6.7 9.0 9.8 12.8 96.2 U.6 46.6 16.4 lS.1 21.8 91.2 63.9 22.7 88.1 10.4 0.9 10.2 11.9 ta.2 12.9 ** 3.7 -6.6 11.0 17.2 87.8 14.0 80.6 4.0 -8.7 -10.7 -10.6 -6.6 -8.6 80.0 -9.2 -7.8 -8.9 -11.7 -14.4 -10.2 N.A. N.A. N.A. N.A. N.A. N.A. N.A. 11.9 1.9 2.9 6.2 8.6 13.2 6.9 -43 8.8 1.8 6.8 6.1 23 80 ** -1.8 0.7 13 -6.0 4.0 -1 J N.A. N.A. NA N.A. N.A. N.A. 49.8 9.4 :f 11.0 18.6 19.8 12.6 27.9 9.2 8.6 11.6 W.1 80.1 19.4 17.5 11.7 26.1 22.9 06.5 61.6 27.9 40.0 4.1 8.5 6.2 7.0 -2.7 9.6 -1.7 -2.8 -1.5 4.1 03 -6.9 -1.6 -6.1 -19. 1 -9.9 -1.2 7.9 ls.6 4.9 a* .* 6.9 -1.7 -2.6 -2.0 -1.8 19.9 6.8 6.0 7.5 9.0 18.0 9.4 29.2 6.0 4.6 6.4 18.8 l9.9 11.0 140.0 15.9 17.1 14.7 16.2 27.6 18.9 Southwut 16.0 6.9 10.8 10.5 U.7 roa 15.0 Ariwar 11.9 129.7 28.1 29.2 24.0 213 29.4 New Mexico 62.6 29.1 20.5 16.0 17.0 25.8 19.4 Oklahoma N.A. N.A. N.A. Nk Nk N.A. N.A. (b) 20.2 6.7 8.7 12.8 17.6 42.7 17.8 - 41.1 14.6 12.7 16.1 18.9 46.2 22.0 6.8 -1 1.9 -7.8 -2.1 6.6 25.0 0.9 ** 8.6 9.7 11.2 15.9 41.4 14.9 10.9 7.6 11.9 17.6 20.0 42.4 18.1 N.A. N.A. N.A. N.A. N.A. N.A. N.A. 66.0 8.5 8.5 10.2 11.1 4.0 86 58.0 7.0 8.4 10.5 11.4 8.9 8.1 N.A. N.A. N.A. N.A. N.A. N.A. N.A. 48.4 12.9 8.9 8.6 8.0 16.4 11.1 N.A. N.A. N.A. N.A. N.A. N.A. N.A.. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 40.4 6.4 8.6 12.9 16.2 29.4 ls.1 Table la Effects of The Tax Reform Act of 1886 on State Tax Liabilities, by Provirion, by State (in millions of dollars) ~o~on8 4 %'8zh kovlrknr Td $1,901.4 8 6,rs7.8 New hgbd 79.5 62.7 82.6 Co~ecficut(4 -2.0 86.7 a4.7 Msine 14.2 17.6 88.5 bhMehu.ettr 48.4 463 103 NwHam- (4 -0.1 9.1 Rhoda IBlnnd 16.2 20.1 44.4 Vermont 7.8 l8.6 46.4 Midbut 685.3 474.6 1,167.7 Delamm 9.9 20.1 84.2 W-n, DC 22.1 26.8 47.9 md 86.0 57.0 165.2 NwJeney 4.6 4.0 41.5 NwYork 473.9 460.6 1,014.8 PennrylMaia -2.1 40.8 42.9 Orut L.Lw 108.6 167.8 19.7 m.9 m.9 lllinoir 20.8 86.7 0 45.4 102.4 Indiana 9.6 0 s9.0 88.6 Michiean 29.3 182.8 0 s.0 241.1 Ohio 29.8 5.2 m.1 221.1 Wllcomin 1.6 8.1 19.7 22.4 70.7 P&ina 266.8 49.6 m.7 844.4 719.6 lam 83.6 a6.1 48.1 9.6 112.3 KmM8 a4.9 as.7 19.8 60.7 U1.l Minnaota 112.9 88.1 6.0 168.6 326.6 MiwurI 60.9 4.9 63.8 68.4 168.7 Nebmka 18.2 47.6 -42.5 82.1 -29.8 North Dakota 5.4 -8.8 -10.0 6.1 -8.3 hth (b) N.A. N.A. N.A. N.A. N.A. buthurt w.0 18.4 89.6 274.2 740.1 Alakmmn 4.9 293 22.0 -20.2 a0.0 Mranrar 2.4 0.1 -93 -6.8 Florida (b) N.A. N.A. N.A. N.A. N.A. 100.6 23.9 llS.0 237.4 EPw 86.2 a4.4 26.2 19.6 115.4 Louisiana 28.4 80.9 413 41.8 142.4 XbfiMiesippi 18.6 0 -6.8 7.2 North Carolina 0.2 0 0 42.6 32.4 &uth Carolina 54.9 -115 J 0 61.7 4.7 Tenname (4 -0.7 0 0 -0.7 Virginia 101.6 15.7 0 91.4 206.7 we& Virginia 17.1 5.4 0 1.1 47.6 Southwest 81.7 66.1 87.6 140.6 a24.9 Ariconn 5.6 24.6 88.0 84.2 102.4 New Maxim 20.1 113 80.5 61.9 Oklahoma 66.0 29.2 9.4 75.8 160.6 T- (b) N.A. N.A. N.A. N.A. N.A. Mountain 106.6 86.0 75.9 127.0 343.6 "$lo* 66.1 4.2 64.8 69.1 223.7 Idaho 12.0 -29.2 18.0 0.8 Montana 8.0 5.1 8.0 7.3 28.4 Utah 29.6 14.9 19.6 S2.6 90.6 Wyoming (b) N.A. NA N.A. N.A. N.A. Far Wert 956.9 72.6 6.9 79.3 1,113.7 California 902.8 21.8 -0.3 273 W1.6 N. A. NA N.A. N.A. N.A. 53.1 60.8 6.2 62.1 162.2 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 41.1 80.8 71.9 Note: Detail may not add to totals because of rounding. (a) State has very limited income tax. 0)State has no income tax. *Less than $50,000. **Less than 0.05%.

- 14 - . Teble76 Effect8 of The Tux Reform Act of 1986 on State Tax Liabilities, by Provision, by State (in percent changes) -0vklonS 3 4

Chr aln "MXv' tax"E*a kovkkn8 03% 2.896 -1.1 1.1 .* 11.7 0 J 5.3 a* .* -0.9** -11.7 6.7 -11 J 8.2 ** 3.6 ** 5.6 .* 6.6 0.6 ** 2.8 ** ** -2.2 0.8 t, 4.2 ** ** -1.2 ld 0.1 8.0 1.2 ** 1.6 ** *I 3.1 8.6 .* 3.8 0.2 ** 6.2 13 0.1 0.9 1.1 6.6 1.0 1.4 7.6 s.7 3.8 4.5 1.1 6.0 4.9 2.6 9.1 4.8 1.4 0.2 6.7 4.1 -0.3 4.1 6.7 5.0 -9.8 -12.9 9.5 6.8 -9.7 -12.2 6.8 -10.2 N.A. N.A. N.A. N.A. N.A. 8.8 03 0.8 2.6 0.6 8.0 2.7 -2.6 0.4 ** ** -L7 N.A. N.A. N.A. N.A. N.A. 6.1 1.2 ** 6.0 12.5 4.1 8.8 2.8 23 18.4 5.3 5.5 7.0 8.2 27.9 4.7 I* *. -2.2 2.6 ** ** -1.6 5.6 ** 6.5 -1 J ** ** 4.6 *+ 4.1 8.9 6.8 4.6 2.0 8.2 0.8 5s 5.0 8.9 ** 14.5 29.4 6.6 ** 9.2 19.4 N.A. N.A. N.A. N.A. 5.2 9.5 6.4 17.3 5.4 4.8 6.8 22.0 4.2 +* 6.6 0.3 4.0 2.5 8.8 8.7 14.8 5.7 2.7 2.4 6.5 18.1 N.A. N.A. N.A. N.A. N.A. 7.1 0.6 ** 0.6 8.5 7.5 0.2 ** 0.2 8.1 N.A. N.A. N.A. N.A. N.A. 3.6 8.8 0.4 8.6 11.1 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 8.8 ** ** 6.6 15.1 [This page was left blank intentionally to preserve proper table sequence.] Table 8 - Number and Percentage of Taxable Federal Returns - Made Nontaxable by The Tax Reform Act of 7986

United Stab8 4,437.0 Southeut Alabama New England 190.1 Arkansarr Connecticut 24.1 Florida Maine 55.2 G-@ Massachusetts 86.9 Kentucky New Hampshire 21.4 Louisiana Rhode Island 18.4 Mississippi varmont 9.0 North Carolina hut. Carolina Mideast 827.1 Tennessee Delamre 11.8 Virginia Washington, DC 17.5 wwvirginia Maryland 05.4 Bouthwert New Jmey 204.8 Arizona New York 846.8 New Mexico P~1111~yhrania 161.8 Oklahoma Teurs Great Lakes 578.9 Illinois 157.7 Rocky Mountain Indiana 05.8 Colorado Michigan 154.9 Idaho Ohio 184.0 Montana Wisconsin 46.4 Utah Wyoming Plaku Wed Iowa Far Kansas California Minnesota Nevada Missouri Oregon Nebraska Washington North Dakota Alaska South Dakota Hawaii Table Q Number and Percentage of Taxable State Returns Made Nontaxable for State Income Taxes, by State (for states which have enacted changes to rtandard deductions and personal exemptions, as of October 1987)

Number (000'8) . Percent State Percent United Stater 1,509.4 southeart Alabama NA. NA. New England Arkansas 10.0 1.6% Connecticut NA. NA. Florida NA. NA. Maine NA. NA. Georgia NA NA. Massachusetts NA. NA. Kentucky NA NA. New Hampshire NA. NA. Louisiana NA NA. Rhode Island NA. NA. Mississippi NA. NA. Vermont NA NA. North Carolina NA NA South Carolina NA. NA. nlideaet Tennessee NA. NA. Delaware 4.6 1.6 Virginia 0.4 0. Washington, DC 26.9 9.7 West Virginia 21.8 -land 6.0 0.8 New Jersey NA NA Southwe& New York 246.1 8.7 Arizona 1.6 Pennsylvania NA NA. New Mexico 0.8 Oklahoma NA Great Lakes Texas NA. Illinois NA NA Rocb Mountain hrlinnn NA. NA. Colorado 86.6 7.9 Michigan NA NA Idaho NA. NA. Ohio 64.1 1.4 Montana NA NA. Wisconsin 18.9 1.0 Utah -11.8 -2.5 Plaine Wyoming N.A. NA. Iowa NA NA Far West Kansas NA NA. California 691.8 6.6 Minnesota 226.2 18.2 Nevada NA NA. Missouri NA. NA. Oregon 0. Nebraska NA. NA. Washington NA. NA. North Dakota NA. NA. Alaska NA. NA. South Dakota NA. NA. Hawaii 18.6 6.5 *Less than $50,000. **Less than 0.05%. Table 8 (m) Number and Percentage of Taxable State Returns Made Nontaxable for State Income Taxes, by State (for 8tates which have enacted chan~esto rtandard deductions and personal exemptions, a8 of October 1987)

Notes

The following state tax law changes were simulated for Tub& 0. Changed percentage of state AGI for standard deduction Prom 18.8% to 19.4%. Changed upper limit on ~~tandarddeduction hm$917 (single returns) and $1,884 (joint returns) to $998 and $1,996, respectively. Changed personal exemption from $1,884 for each taxpayer and $1,100 for each dependent to $1,996 and $1,198, respectioely. Changed personal exemption credit from $17.60 for each taxpayer and $6.00 for each depemdent to $20 Per P-on* Changed zero bracket amount Prom $1,710 (single returns) and $3,420 (joint returns) to $1,880 and $3,760, respectively. Changed personal exemption credit hm$48 to $51. Changed standard deduction Prom $1,420 for all returns to federal amounts by filing status. Changed personal exemption hm$1,200 to federal amount. Changed maximum standard deduction from $1,000 for all returns to $1,500 (single returpll) and $1,600 (joint returns). Changed personal exemption from $1,000 to $1@0. Changed standard deduction from $1,000 to $2,000. Changed personal exemption from $750 to $1,870 (shad in by 1990). Changed standard deduction Prom $800 (single returns) and $1,000 (joint returns) to $1,000 and $1,700, respectively. Changed maximum standard deduction from $1,600 (single returns) and $5,000 (joint returns) to $2,ooO and $4,000,respectively. Changed personal =emption Prom $800 to $1,000. Changed standard deduction Prom 10% of AGI, up to a maximum of $2,300, to federal amounts. Changed standard deduction from $5,000 (single retu~ps),$4,000 (joint returns) and $5,500 badsf- household returns), to federal amounts. Changed standard deduction Prom $2,600 (single returns) and $5,000 (joint returns) to $3,600 and $5,300, respectively. Changed pe~sonalexemption from $850 to $900. Changed personal exemption from $650 to $1,000. Raised maximum standard deduction from $1,500 to $1,800. Lowered standard deduction for single retulps from 15% ofAGI with a minimum of $1,500 and amaxi- mum of $2,000, to 15% of AGI with a minimum of $650 and a maximum of $1,000. Changed standard deduction &om 15% of AGIwith a minimum of $1,300 and a maximum of $2,000, to a flat $2,000 (single returns) and $4,000 (joint returns). Changed personal exemption Prom $600 to $800 (phased in by 1988). Eliminated $1,000 standard deduction. Changed personal exemption from $800 to $2,000. Changed maximum standard deduction hm$7,200 to $7,560 for joint returns and reduced phased- out range. Table 10 Additional Number and Percentage of Taxable State Returns Made Taxable for State Income Taxes If States with Standard Deductions and Personal Exemptions Increase Those Amounts to New Federal Levels, as of October 1987

Number Number (000'8) Percent State (000'8) Percent United States 8,661.5 southeaof Alabama 800.5 24.0% New England Arltnnnnn 65.1 8.2 Connecticut (a) NA. NA. Florida (b) NA. NA. Maine 45.4 11.0 -a 196.9 9.8 Massachusetts 182.4 4.8 Kentuclry M.8 11.4 New Hampshire (a) NA. NA. Louisiana 0 NA. NA. Rhode Island (c) NA. NA.. Mississippi 18.6 8.2 Vermont (c) NA. NA. North Carolina 857.9 17.6 8011thCarolina (el NA NA. Mideast Tennessee (a) NA. NA. Delaware 61.0 17.1 Virginia 49.4 Washington, DC 21.5 8.6 West Virginia 66.5 -land 70.8 8.7 solxthW81f New Jersey 218.8 6.0 Arizona 78.8 7.6 New York 270.8 4.8 New Mexico (el NA NA. PennSylva.nia(d) NA. NA. Oklahoma 57.8 6.1 Te~ras(b) NA. NA. Great Lakes Illinois 150.8 2.8 Rocky Mountain Indiana 161.8 7.9 Colorado 0 NA. NA. Michigan 555.4 14.1 Idaho (el NA. NA. Ohio 100.6 2.7 Montana 42.8 17.2 Wisconsin 0 NA. NA. Utah 95.7 17.9 Wyoming (b) NA. NA. Plains Far Weet Iowa 23.4 2.9 California 166.5 2.0 Kansas 58.4 7.4 Nevada (b) NA. NA. Minnesota (el NA. NA. Oregon 04.8 8.6 Missouri 115.0 6.9 Washington (b) NA. NA. Nebraska (c) NA. NA. N&th D&O& (c) NA. NA. Alaska 6) NA. NA. South Dakota (b) NA. NA. Hawaii 47.9 15.0 NA-Not Applicable (a) State has a very limited income tax. (b) State has no income tax. (c) State tax is a percent of federal liability. (d) State has no personal exemption or standard deduction. (el State personal exemption and standard deductions are the same as new federal amounts. (0 State's combined personal exemption and standard deduction exceeds federal amounts. Appendix A Sample and Methodology

The tax return data used for this report 601 sample is vay small-1,000 returns or are &om the 1981IRS public use Statistics of less. As a result, sampling error may cause sta- Income ($01)file extrapolated to 1986 income tistically unreliable rdtsfor some sets of levels. This data file contains a stratified ran- tax provisions or for some income classeg dom sample of approximately 140,000 tax re- within a state. Consequently, the data pre- turns taken &om the total of over 95 miUion sented in this report should be interpreted as returns filed in 1981. Accordingly, each record representing general tendencies and bnds on the file contains a statistical weight indi- rather than the results that would necessarily catingthe number of returns in the U.S. popu- hold if large state samplas were used. lation that are reprwnted by that record. The Policy Economics Group's tax model Data from the tax We have been statisti- follows the procedures that individual taxpay- cally merged with demographic and economic ers follow in completing their federal and state data &om the Cumnt Populcrtion Sumof income tax returns. Each record from the data the US. Census Bureau. The merged SO1 and base is processed as an individual tax return, Census data base contains approximately calculating federal tax liability first and then 300,000 records with about 500 items of infor- based per tax, state tax liability on the legal couplingq mation record, including demo- if any, between that state and federal law. For graphic, and other data imputed to the merged file &om other sources. Each record on the those states that allow married couples to file Policy Economics Group's file contains a code separate returns, each federal return is 'splitw indicating the state of residence of the tax re- into a husband and wife based on data &om turn. Use of this code allows the model to de- the Census portion of the file. The state tax li- termine federal and state taxes by state, ability is computed first as a couple, and then TcrbZe A-1 presents the Policy Economics as two separate returns. The option that pro- Group's estimates of the original distribution duces the lower liability is then chosen as that of the SO1 sample by state. This distribution couple's fmal tax. AU tax liabilities by return can only be estimated because the public use are then summed to generate state totals for file does not contain a state designation for both federal and state taxes, incorporatingthe high-income taxpayers. For some less popu- individual statistical weights for each return lous states, the number of tax returns in the on the file. Tab/eA1 Estimates of Original Distribution of SO1 Sample, by State state State Returns Alabama Montana 042 Alaska Nebraska 1,798 Arizona Nevada 1,140 Arltansas New Hampshire 955 California New Jeroey 4,893 Colorado New Mexico m7 Connecticut New York 10,546 Delaware North Carolina 2,489 Washington, DC North Dakota 695 Florida Ohio 5,572 Georgia Oklahoma 2,660 Hawaii Oregon 1,841 Idaho Pemuylvsnia 5,885 Illinoiu Rhode bland 858 Indiana South Carolina 1,601 Iowa &mth Dakota 697 'Ranrm Tennesmee 2,801 Kentucky Te~er 10,205 Louisiana Utah 1,595 Maine Vermont 458 Maryland neini. 2,718 Waohington 2,878 Massachusetts Virginia Michigan West 1,- Wisconsin 2,889 Minnesota Missiesippi WYO~~ 684 Missouri United States Totalo 144,822

*Includes 751 tehuas for US. Territories. Appendix 8 Regional Tables I Table B1 Effects of The Tax Reform Act of 1986 on Federal Tax Uabilities, by Income Class, by Region

-come Clam (thousands)-' Under 10 10-20 20-30 30-50 60-100 Ovcn 100 Total

(in millions of dollars)

United Stateso New England Mideast Great Lakes Plains Southeast Southwest Rocky Mountain Far West (in percent changes)

United States* New England Mideast Great Lakes Plainn Southeast Southwest Roc47 Mountain Far West

*Includes Alaska and Hawaii, not included in regions, Table 82 Effects of The Tax Reform Act of 1886 on Federal Tax Uabilities, by Providon, by Region

-rovldon- 1 2 3 4 Changes In Personal Exemptions, Standard Changes Deduction, and Changer In Earned Changes in ttemked Income In An Other Deductions CredR Tax Rates Provkionr Total

(in mllllons of dollars)

United Stateso $21,185.7 New England 1,157.7 Mideast 4,194.7 Great Laker 8,206.4 Plains 1,211.2 Southeast 4,855.8 Southwest 1,870.6 Rocb Mountain 691.4 Far Wed 4,422.4 (In percent changes)

United States* 6.6% New England 4.4 Mideast 6.3 Great Lakes 4.9 Plains 6.2 Southeast 5.8 Southwest 6.2 - RockyMountain 6.4 Far West 7.4

*Includes Alaska and Hawaii, not included in regions. Table 83 Effects of The Tax Reform Act of 7986 on State Tax Liabilities, by Income Class, by Region

------fncome Clam (thousandr) Under 10 20-30 30-60 50-100 Total

(in mllllons of dollars)

United Stateso $301.3 $438.3 $1,294.5 $,1878.8 $5,187.8 New England 4.0 82.6 Mideast 22.6 1,167.7 Great Lakes 143.8 673.9 Plains 15.0 719.5 Southeast 22.2 740.1 Southwest 8.4 824.9 Rocky Mountain 7.9 843.5 Far We& 76.0 1,118.7

(In percent Changer)

United States* 84.8% 7.4% New England 8.7 0.7 Mideast 10.7 6.3 Great Lakes 120.1 6.8 Plains 22.2 12.6 Southeast 11.9 6.9 Southwest 140.0 18.9 - Rocky Mountain 20.2 17.5 Far West 56.0 8.5

*Includes Alaska and Hawaii, nd included in regions. **Less than 0.05%. Teble 84 Effects of The Tax Reform Act of 1986 on State Tax Liabilities, by Provision, by Region

-rwklorr 1 2 a 4 Changes In Personal Exemptions, Standard Changes Deductton, and Changes In Earned Changer In ltemked Income br All Other Deductions Credtt Tax Rates Proufdons Total

(In millions of dollars)

United Statesb $2,571.4 $470.4 $244.6 $1,901.4 $5,187.8 New England v Mideast Great Plainr Bouthen& Bouthwe& Rocky Mountpin Far We&

(In percent changes)

United Statesb 8.7% 0.6% 0.8% 2.8% 7.6% New England Mideast Great Lakes Plainr Southeast Southwest Rocky Mountain Far West

*Includes Alaska and Hawaii, not included in regions. **Less than 0.05%. TWe B5 Number of Taxable Returns Made Nontaxable by The Tax Reform Act of 1986, by Region (In thousands)

Enacted Conformurce As of October- Wtth Federal 1987' Federal LnrrP

United States* 4,437.0 1,809.4 8,661.5 New England Mideast Great rrlrnlr Plains Southeaut Southwest Rocky Mountain Far West

*Includes Alaaka and Hawaii, not included in Wona lFor states which have enacted change8 to ohndard deductions and pgeonal a- emptiona %dditional change if states with standard deductions and personal exemptions in- cmse those amounts to new federal levels. Recent ACIR Publlcatlons The Tcrx Rsfbrm Act of 1886: Ik Effect on Both Federal and State Penonal Income Tax Liabilltier, SR-8,1/88,84 pp. Government# at Risk: Liability kuursnce and Tort Reform, SR-7,12/87,88 pp. The Otganitation of Local Public Eoonomier, A-109,12/87,64 pp. Measuring State Fbcd Capacity, 1987 Edition, M-156,12/87,152 pp. Sigdfhant Features of Fircal Federalism, 1988 Edition, VoL 1, M-155,12/87, I28 pp. II Constitutional Reform Necerrary to Reinvigonts Federaliem? A Roundtable Mscurrion, M-154,11/87,89 pp. Local Revenue Diveroification: Uoer Chargem, SR6,10/87,64 pp. The Transformation in American Politics: Implicationr for Federabm, WR,10/87,88 pp. Changing Public Attituder on Governmento and Tuer, S-16,9/87,64 pp. Devolving Selected Federal-Aid Highway Prowrpd Revenue Baser: A Critical Apprafsal, A-108,9/87,66 pp. Estimater of Revenue Potential from State Taration of Out~f-StateMail Order Sales, SR-5,9187,10 pp. A Catalog of Federal Grant-in-Aid Prowto State and Local GCowrnmenk: Grantr Phnded FY 1987, M-la, 8'87.86 pp. Fiscal Discipline in the Federal 8-111: National Reform and the Experience of the States, A-107,8/87,58 pp . Federalism and the Constitution: A Symposium on Orrrcicr, M-162,7/87,88 pp. Local Perspectives on State-Local Highway Codtation and Cooperation, SR4,7187,48 pp. Summary of Welfare Reform Hearingo-1988, SR-3,6/87,81 pp Significant Features of Fiscal Federalie- 1987 Edition, M-151,6/87,804 pp. Preliminary Estimater of the Effect of the 1986 Federal Tax Reform Act on State Personal Income Tax Liabilitier, SR2,12/86,16 pp. Measuring State Fiscal Capacity: Alternative Methods and Their Uses, 1986 Edition, M-150,9186,181 pp. The Transformation in American Politics: Implications for Federalism, A-106,8/86,400 pp. The Agricultural Recession: Its Impact on the Finances of State and Local Governments, SR-1,6/86,60 pp. State and Local Taxation of Out-of-State Mail Order Sales, A-105,4/86,160 pp. A Framework for Studying the Controversy Concerning the Federal Courts and Federalism, M-149,4/86,75 pp. Devolving Federal Program Responsibilities and Revenue Sources to State and Local Governments, A-104,5/86,88 pp. The reports of the Advisory Commission on Intergovernmental Relations are released in five eerie%: the "Aw series de- note reports containing Commission recommendations; the "M"series contains Commission information reports ;the "Swseries identifies reports based on public opinion sweys; the "B" series reports are abbreviated summaries of full reports', and the "SRwseries are staff information reports. Reports may be obtained from ACIR, llll-20th Street, IW, Washington, DC 20575. Current Members of the Advisory Commission on Intergovernmental Relations (January 1988) Private Citizens Jarnee S. Dwight, Jr., Arlington, Virginia Daniel J. Elazar, Philadelphia, Pennsylvania Robert B. Hawkins, Jr., Chairman, Sacramento, California Members of the U.S. Senate David Durenberger, Minnesota William V. Roth, Jr., Delaware James R. Sasser, Tennessee Members of the US.House of Representatives Sander Levin, Michigan Jim Rose Lightfoot, Iowa Ted Weise, New York Officers of the Executive Branch, U.S. Government Gwendolyn S. King,Deputy Assistant to the President, Diredor of Intergovernmental Maim Edwln Meese, 111, Attorney General Vacancy Governors John Ashcroft, Missouri Ted Schwlnden, Montana John H. Sununu, Vke Chcrirman, New Hampshire Vacancy Mayors Donald M. Fraser, Minneapolis, Minnesota William H. Hudnut, III, Indianapolis, Indiana Robert M. Isaac, Colorado Springs, Colorado Henry W. Maier, Milwaukee, Wisconsin Members of State Legislatures John T. Bragg, Deputy Speaker, Tennessee House of Representatives Ross 0. Doyen, Kansas Senate David E. Nething, Majority Leader, North Dakota Senate Elected County Officials Gilbert Barrett, Dougherty County, Georgia, County Commission Philip B. Elfstrom, Kane County, Illinois, County Commission Sandra Smoley, Sacramento County, California, Board of Supervisors ?

ation among the levels of governmat and What more effective functioning of the federal system. In addition to dealing with the all- important hctional and structural rela- tionships among the various governments, the Commission has also extensively stud- ACIR? ied dtical stresses currently being placed on traditional governmental taxing prac- ti-. One of the long-range efforts of the Commission has been to seek ways to h- The Advisory Commission on Intergwern- prove federal, state, and local governmental mental Relations (ACIR) was created by tnrinp practic88 and policies to achieve the Congresa in 1959 to monitor the opsnr- equitable allocation of reisources, increased tion of the American federal system and to efflciencp in collection and -tion recommend improvements. ACIR is a per- and reduced compliance burdens upon the manent national bi- body repre- renting the e~emtive and legislative -PQ'-* branches of federal, state, and local govern- Studies undertaken by the Commission ment and the public. have dealt with subjects as diverse as trans-. portation and as spedfh as state collection , The Commission is composed of 26 mem- of sales taxes on mail order sales; as wide bers-nine representing the federal gov- rangingas substate regionalism to the more ernment, 14 representing state and load rpecialized issue of local revenue diversifi- government, and three representing the cation. In selecting items for the work pro- public. The President appoints 20-three gram, the Commission considers the private citizens and three federal executive relative importance and urgency of the officials directly and four governors, three problem, its mumgeability &om the point state legislators, four mayors, and three of view of finances and staff available to elected county oficials from slates nomi- ACIR and the extent to which the Comrnia- nated by the National Governors' Confer- sion can make a fruitful contribution to- ence, the Council of State Governments, ward the solution of the problem. the National League of Cities/U.S. Confer- ence of Mayors, and the National Associa- Aher selecting specific intergovernmental tion of Counties. The three Senators are issues for investigation,ACIR follows a mul- chosen by the President of the Senate and tistep procedure that assures review and the three Representatives by the Speaker comment by representatives of all points of oftheHouse. . view, aIl affected levels of governxnent, tech- Each Commission member serves a two- nical experts, and interested groups. The year term and may be reappointed. Commission then debates each issue and formulates its policy position. Commission As a continuing body, the Commission ap- findings and recommendations are pub- proaches its work by addressing itself to lished and draf't bills and executive orders specific issues and problems, the resolution developed to assist in implementing ACIR of which would produce improved cooper- policies