State Adoption of Tax Policy New Data and New Insights

This article examines the factors that influence two important areas of state tax policy—the adoption of an income tax as well as whether a state permits deducting federal income taxes against state individual income taxes. We focus on a factor that has largely been unexplored, the flow of income going to the Top 1% of earners. Using data from two different time periods (1916-1937 and 1960-2003), we find that the share of income received by the richest 1% of taxpayers corresponds with both the likelihood states will adopt an income tax as well as whether states allow deductions of federal income tax against state individual income taxes.