Microsimulation Models and State Tax Reform: The Case of Massachusetts

Abstract

The first half of the 1980s has been a particularly volatile period for state government finance. In 1980 and 1981, a large number of states reduced taxes in response to the ‘tax revolt’ movement initiated by California’s Proposition 13. In 1982 and 1983 the trend towards lower taxes was reversed, as many states battled recession-induced fiscal crises by raising tax rates. In 1985 the trend was again reversed, as 14 states lowered their personal income taxes and one lowered its sales tax (Gold, 1986). The future direction of state tax policy is particularly uncertain given the possibility of federal tax reform, especially if it includes the elimination of state and local tax deductibility, and the likelihood of major cuts in funding of federal domestic spending programs and grants.

I would like to acknowledge the generous assistance of Heather Pritchard. Without her advice and guidance in building the simulation model this research could not have been carried out. The Massachusetts Income Tax Simulation Model is a direct outgrowth of models of the California state tax system which were developed with Howard Chernick. I relied heavily on his support and advice in developing the Massachusetts model. Daniel Pliskin provided able research assistance.