Understanding the Nuttiness of State Tax Policy: When States Have Both Too Much Sovereignty and Not Enough

Much of this nuttiness, the part related to lack of uniformity and consistency across states, the legal inability to implement policies that would make good sense, and the part that involves state beggar–thy–neighbor tax policies, such as sales–only apportionment and the failure to require combination of unitary businesses, is rooted in our system of government. As my title says, the individual states have both too much sovereignty over tax policy and not enough. I will use the lack of coordination of corporate income taxes and of sales and use taxes to illustrate the problem. For this purpose I will use the term "coordination" to refer to uniformity of tax bases and administrative procedures and cooperation in administration, but not to harmonization of tax rates, which should be under state control and not necessarily uniform.