From an article by Steven D. Gold in State Legislatures magazine:
Are there any grounds for optimism that states will begin to take tax reform more seriously -- abandoning the path of eroding tax bases and allowing tax systems to develop by inertia? Ironically, the odds for improving tax policy could worsen if state fiscal conditions worsen. Adverse factors can still place stress on state tax systems.
The tax revolt, for instance, is not dead but dormant and contributed to the decision to lower income taxes last year. The economy is sure to experience another recession at some point, and it could be a serious one because of the fragility of the domestic and international financial systems. In addition, federal aid cutbacks could become more severe than they have been since 1982.
Another source of stress is the intense interstate tax competition, which shows no signs of abating. Federal tax reform could create new dilemmas for states by curtailing, or eliminating, the deduction for state and local taxes or simply by reducing tax rates. If federal tax rates are lowered significantly, the importance of interstate tax rate differentials would grow, spurring even greater competition among states, particularly to lower the income tax.
In such an environment, interest in tax policy might well increase because the importance of finding revenue to fund popular programs shows no signs of lessening. As Joe Clarke, the chair of the Kentucky House Appropriations and Revenue Committee, observes, "There is a growing recognition on the part of legislators that taxes have been enacted or modified in a manner that has no rhyme or reason. Like Topsy, the changes have just grown. These decisions have been based on politics rather than on any coherent policy."