How federal policymakers account for the concerns of state and local governments in the formulation of federal tax policy.

Johnson, Nicholas. "Federal Tax Changes Likely to Cost States Billions of Dollars in Coming Years." Washington, D.C.: Center on Budget Policies and Priorities, May 20, 2003.

Maguire, Steven. State and Local Taxes and the Federal Alternative Minimum Tax. Congressional Research Service Report No. RL32942, Washington, D.C.: Library of Congress, 2006.

Maguire, Steven. State Corporate Income Taxes: Description and Analysis. Congressional Research Service Report No. RL32297. Washington, D.C.: Library of Congress, 2007.

Maguire, Steven, and Nonna Noto. Internet Taxation: Issues and Legislation. Congressional Research Service Report No. RL33261. Washington, D.C.: Library of Congress, 2007.

Mazerov, Michael. "A Five-Year Extension of the Internet Tax 'Moratorium' Would Further Erode the Tax Base of States and Localities." Washington, D.C.: Center for Budget Policies and Priorities, 2001.

Muntean, Mark A. "California's Nonconforming Conformity Legislation." State Tax Notes 39 (January 23, 2006): 259-61.

National Association of State Budget Officers. "New Government Withholding Provision Could Involve Costs to States." Washington, D.C., 2006.

Pomp, Richard. "Restructuring a State Income Tax in Response to the Tax Reform Act of 1986." Tax Notes 36 (September 21, 1987): 1195-207.

President's Advisory Panel on Federal Tax Reform. Simple, Fair, and Pro-Growth: Proposals to Fix America's Tax System. Washington, D.C., 2005.

Reuben, Kim. "The Impact of Repealing State and Local Tax Deductibility." State Tax Notes 37 (August 15, 2005): 497-513.

Standard and Poor's Industry Surveys. Alcoholic Beverages and Tobacco, 2006. New York: McGraw Hill Companies, 2006.

Stark, Kirk. "Fiscal Federalism and Tax Progressivity: Should the Federal Income Tax Encourage State and Local Redistribution?" UCLA Law Review 51 No. 1 (2004): 1389-435.

Stotsky, Janet G. "The Effect of the Elimination of Sales Tax Deductibility on State Fiscal Decisions." Public Finance Quarterly 18 No. 1 (January, 1990): 25-46.

Tower, Ralph B., and Caroline M. Boyd. "Tax Base Modifications: The Hidden Barrier to Simplification." State Tax Notes 41 (July 17, 2006): 165-73.

U.S. Congress. Joint Committee on Taxation. Options to Improve Tax Compliance and Reform Tax Expenditures. JCS-02-05, Washington, D.C.: 2005.

U.S. Congress. Joint Committee on Taxation. Estimates of Federal Tax Expenditures from FY 2006-FY2010. JCS-2-06, Washington, D.C.: 2006a.

U.S. Congress. Joint Committee on Taxation. Estimates of the Tax Relief and Health Care Act of 2006. JCX-51-06, Washington, D.C.: 2006b.

U.S. Congressional Budget Office. Taxing the Untaxed Business Sector. Washington, D.C., 2005.

U.S. Congressional Budget Office. Budget Options. Washington, D.C., 2007.

U.S. Government Accountability Office. Financial Management: Some DOD Contractors Abuse the Federal Tax System with Little Consequence. GAO-04-95, Washington, D.C., February, 2004.

U.S. Government Accountability Office. Information on Selected Capital Facilities Related to the Essential Governmental Function Test. GAO-06-1082, Washington, D.C., September, 2006.

Zimmerman, Dennis. The Private Use of Tax Exempt Bonds. Washington, D.C.: Urban Institute Press, 1991.

Jane G. Gravelle

Congressional Research Service, Washington, D.C. 20540

Jennifer Gravelle

Government Accountability Office, Washington, D.C. 20548 TABLE 1 FEDERAL TAX EXPENDITURES RELATING TO STATES AND LOCALITIES, FY2007

Amount Expenditure for: ($ billions) Official Tax Expenditures Total (Income Tax Expenditures) 80.5 State and Local Tax Deductions Total 44.1

Real property 13.8

Income tax 26.2

Sales 3.0

Personal property 1.1 Tax Exempt Bonds Total 36.3 General 27.9 Private Activity (itemized below) Total 8.3

Owner occupied housing 1.4

Rental housing 0.7

Small issue 0.4

Highway and rail (.)

Green buildings (.)

Airports, docks, mass commuting 1.1

Student loans 0.4

Education facilities 1.7

Hospitals 2.6 Credits for Qualified Zone Academy Bonds (QZAB) 0.1 National Guard travel expenses 0.1 Deduction For Corporate State/Local Income Taxes 20.0 Estate Tax Credit (if 2001 provisions expire) 6.3 Exemption for State and Local Businesses Expenses 4.2 Note: Tax expenditures are from joint Committee on Taxation (JCT, 2006a). The tax expenditures for income and personal property taxes were allocated based on the relative size of deduction on tax returns in the latest tax data (2004, http://www.irs.ustreas.gov/taxstats/ indtaxstats/article/article/O..id=96987.00.htm1). The tax expenditure for sales taxes is from JCT (2006b), which restored the expired sales tax provision (http://www.housr.gov/jct/pubs06.html). The corporate tax expenditure estimate is explained in the text. The state estate tax credit was from the 2001 estate tax file, and the credit was from Internal Revenue Service (http://www.irs.ustreas.gov/taxstats/indtax stats/article/0..id=96442.00.html). The cost of exempting state and local government enterprises from tax was based on estimates for electric utilities, and the assumption that the tax benefit relative to receipts was the same across other government enterprises (Congressional Budget Office, 2005, 2007). TABLE 2 PERCENT OF BOND ISSUANCES THAT ARE FOR ACTIVITIES OF A PRIVATE NATURE * Private Nature Activities 2001 2002 2003 2004 Development 3.25% 3.14% 2.57% 2.73% Education 12.43% 12.53% 14.38% 16.65%

Higher education student loans 8.65% 8.18% 9.16% 9.14%

3.78% 4.35% 5.22% 7.50% Electric Power 6.20% 8.86% 6.33% 2.93% Health Care 10.83% 9.63% 10.85% 11.81% Housing 10.46% 8.66% 9.97% 9.16% Public Facilities 2.78% 2.25% 2.06% 1.60%

Convention centers 0.98% 1.20% 0.75% 0.51%

Stadiums and arenas 0.84% 0.29% 0.27% 0.20%

Theatres 0.02% 0.07% 0.10% 0.03%

Parks, zoos, and beaches 0.64% 0.36% 0.63% 0.44%

Other recreation 0.30% 0.34% 0.32% 0.42% Transportation 9.14% 9.02% 7.80% 7.51%

Parking facilities 0.29% 0.38% 0.19% 0.29%

Airports 5.73% 3.61% 3.91% 2.87%

Mass transit 3.12% 5.03% 3.69% 4.34% Utilities 0.17% 0.19% 0.43% 0.37%

Gas works 0.13% 0.15% 0.33% 0.26%

Telephones 0.04% 0.05% 0.10% 0.11% Total private 55.26% 54.28% 54.40% 52.76%

Average Private Nature Activities 2005 2006 (2001-2005) Development 3.10% 1.62% 2.70% Education 16.17% 15.07% 14.62%

Higher education student loans 10.49% 9.76% 9.29%

5.68% 5.32% 5.33% Electric Power 4.46% 4.27% 5.48% Health Care 12.65% 13.29% 11.59% Housing 7.26% 10.12% 9.20% Public Facilities 2.86% 2.81% 2.41%

Convention centers 1.31% 0.81% 0.94%

Stadiums and arenas 0.50% 1.32% 0.58%

Theatres 0.04% 0.10% 0.06%

Parks, zoos, and beaches 0.55% 0.27% 0.47%

Other recreation 0.46% 0.30% 0.36% Transportation 7.93% 7.50% 8.11%

Parking facilities 0.28% 0.17% 0.27%

Airports 3.61% 2.73% 3.67%

Mass transit 4.04% 4.60% 4.18% Utilities 0.49% 3.61% 0.96%

Gas works 0.47% 3.56% 0.89%

Telephones 0.02% 0.05% 0.06% Total private 54.91% 58.28% 55.07% * The calculations exclude bond issues that could not be allocated to function. Source: 2007 and 2006 Bond Buyer/Thomson Financial Yearbooks. TABLE 3 GENERAL STATE CORPORATE INCOME TAX CONFORMITY (2007) (1)

Federal Allow