Governors' Tax Reform Principles

The National Governors Association has released a 1-pager, set of Tax Reform Principles. The purpose is to help guide Congress in its tax reform work - and of course, consider state government interests.

Their first principle deals with sovereignty. It state: "No federal law or regulation, including their interpretation and implementation, should preempt, limit, or interfere with the constitutional or statutory rights of states to develop and operate their revenue and tax systems."  That sounds more like a principle relevant not to federal tax system changes, but possible laws Congress may very likely pass in the near future relevant to state taxation such as:

• Main Street Fairness - when might a state require a non-present vendor to collect sales tax.
• Income Tax Nexus - possible update to PL 86-272 to address more than only income taxes and more than only companies that sell tangible personal property.
• Mobile Workforce - to bring uniformity to state rules on when a temporary worker in the state is subject to tax and when their employer is required to withhold.

The next principle addresses public finance and the concern subnational governments have should the income tax exclusion for state and local bond interest be cut back. That would lead to people wanting  higher interest rate and a greater cost to state and local governments.  The exclusion is an upside-down subsidy in that it provides a greater benefit to higher income taxpayers than lower income taxpayers.  So, perhaps it could be converted to a tax credit with a cap.  Perhaps the feds can find another way to encourage bond acquisition without favoring high bracket individuals.

I encourage you to look at the NGA 1-pager. They did a good job boiling their concerns down to a few key ones, issuing this as tax reform heats up in Congress, and providing themselves a foundation on which to help draft comments on specific reform proposals.

What do you think?