How Tax Commissions Succeed and Fail

Lessons from the 2013 DC Tax Revision Commission and

other recent state tax commissions

February 2023

Richard C. Auxier

Introductions

• Richard Auxier, Senior Policy Associate, Tax Policy Center
• Focuses on state and local tax policy
• Served as research analyst for the 2013 DC Tax Revision Commission

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• Kim Rueben, Sol Price Fellow, Tax Policy Center
• Director of the State and Local Finance Initiative
• Served as a commissioner for the 2013 DC Tax Revision Commission

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Presentation overview

• Review of state tax commissions
• What separates successful and unsuccessful commissions?
• How does a commission’s work translate into policy change?

• Lessons from the 2013 DC Tax Revision Commission
• How are the 2013 and 2023 Commissions similar and different?
• How did the 2013 Commission struggle?
• How did the 2013 Commission succeed?

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Review of State Tax Commissions

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Why are tax commissions created?

• We studied 31 state tax commissions that operated from 2006-2016 and assisted recent commissions in Colorado (2020) and Kansas (2021)
• All commissions are independent of the regular legislative process
• Although elected legislators sometimes serve on commissions
• Most commissions are purposefully comprised of diverse perspectives
• Academics, business leaders, community activists, former elected officials, etc.
• A commission’s task is inherently challenging
• Commissions are often asked to do work that the legislature cannot do (i.e., provide long-term perspective) or will not do (i.e., make challenging decisions)
• State tax systems are rooted in history and tradition—not just policymaking

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What do state tax commissions recommend?

• Some commissions propose complete overhauls of the state tax system
• California (2009): Replace corporate income tax and general sales tax with a business net receipts tax
• Georgia (2010), Kentucky (2012), Louisiana (2015): Cut or eliminate individual income tax and expand and/or increase the general sales tax
• Some commissions propose more targeted reforms
• Common reforms include tax rate cuts, increasing the standard deduction, creating or expanding an EITC, and eliminating tax expenditures
• Some commissions do not propose specific policy changes
• California (2016) only provided “best practices”

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How do state tax commissions fail?

• Not making detailed and actionable policy recommendations
• Many commissions recommended eliminating tax expenditures without actually naming the tax expenditures that should be eliminated
• Some commissions detailed how to cut taxes without providing similar details for how to offset the resulting revenue loss
• Not engaging with political opponents and political reality
• Minnesota Republicans created a commission that heard only from conservatives and recommended tax cuts—it died in the Democratic legislature
• Massachusetts Democrats created a commission that heard only from progressives and recommended tax hikes—it mostly died with the Republican governor
• Ambitious proposals in California, Georgia, Kentucky, and Louisiana flopped when they were turned over to the legislature

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How do state tax commissions succeed?

• Most commissions do not see all their recommendations enacted
• Tax reform is hard regardless of the economic, fiscal, or political situation
• But many recommendations (from good commissions) eventually become law
• Policymakers often pick and choose from a list of options
• Sometimes, policy change happens a few years after the report, as policymakers return to the report when economic and fiscal circumstances change
• Successful commissions provide specific, detailed policy changes
• They present both the advantages and disadvantages of their proposals
• They provide revenue estimates and explain “winners and losers” and tradeoffs
• They give policymakers a map to make informed policy changes

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Lessons from the 2013 DC Tax Revision Commission

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2013 DC Tax Revision Commission

• 28 meetings and three public hearings from August 2012 to December 2013
• Similar group of commissioners and similar set of expert presentations
• Fall 2013 the staff assembled and presented 63 memos for tax policy changes
• Some proposals were in direct conflict with each other
• Ideas came from expert testimony, the public, and commissioners
• Each memo detailed the policy change, listed pros and cons, explained the goal (e.g., simplify), and included a revenue score from ORA
• December 2013 the Commission unanimously approved a set of recommendations designed to help residents and businesses prosper
• Final report was published in May 2014
• DC Council enacted a tax package from the recommendations in May 2014

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Major differences between 2013 and 2023

• “The District of Columbia’s economic picture is largely bright” is the first sentence of the 2013 report
• Although, how to attract and retain residents and businesses was a constant discussion
• Commission was given relatively little instruction on what to focus on. In fact, the Commission only identified “challenges” during the course of its meetings:
• 1) Middle-class residents paid a relatively large share of income in tax; 2) District businesses franchise and commercial property taxes were relatively high; 3) the District cannot tax many businesses and individuals because of federal restrictions
• Because of the 2013 Commission’s recommendations, and continued good work by the DC Council, there is now far less “low-hanging fruit” on the policy list
• It is a little easier to advise tax commissions in, say, Kansas …

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Where the 2013 Commission struggled

• Early meetings spanned a wide range of topics and lacked focus
• Organizing ideas into policy changes happened very late in the process
• Lots of disagreement on everything from the main focus of the Commission to if the recommendations should be revenue neutral, a tax hike, or tax cut
• There even was disagreement on how many recommendations to make and how to make them—there were numerous recommendation lists up until the final meetings
• The recommendations were put to a vote on Dec. 9, 2013 … and failed
• Only after changes and lobbying did the recommendations pass unanimously on Dec. 18
• For example, there was also major disagreement about what the top individual income tax rate baseline was (it was scheduled to change) and thus if our proposed rate was a tax hike

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Why the 2013 Commission succeeded

• Singular focus on detailed, actionable policy changes
• Always wanted a cohesive package, but one that the DC Council could take apart
• Delegating work: The staff were able to hammer out policy details based on the commissioner’s policy goals, and a subgroup of commissioners specifically worked out income tax changes that benefited low-income workers
• Values, compromise, and a unanimous vote
• 2013 and 2023 commissions were chosen because of their diversity of opinion
• 2013 commissioners drew red lines on policy changes, but also compromised on other issues—everyone got something, no one got everything
• Unanimous support from that diverse group was key in discussions with DC Council
• Mayor Anthony Williams

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Thank you

Richard Auxier

rauxier@urban.org

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Kim Rueben

krueben@urban.org

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