Managing Fiscal Volatility by Redefining ‘Tax Cuts’ and ‘Tax Hikes’

Jeremy Bearer-Friend This report analyzes how states should cope with fiscal volatility at the level of institutional-design policy. We propose that states reconsider how they define terms like “tax cuts” and “tax hikes.” By adopting a new baseline for defining those terms, states can increase the likelihood of using tax rate adjustments to cope with fiscal volatility rather than more harmful spending fluctuations. By switching from tax-rates baselines to revenue-targets…