Advancing Sound Tax Policy with Katherine Loughead
Hosts & Guests
Judy Vorndran, Partner, State and Local Tax
Meredith Smith, State and Local Tax Senior Manager
Katherine Loughead, Senior Policy Analyst at the Tax Foundation
What You Will Discover:
This week on the SALTovation podcast, Katherine Loughead, Senior Policy Analyst at the Tax Foundation, discusses the importance of sound tax policy and how the Tax Foundation is conducting tax policy research to inform policy deliberations at the state, federal, and international levels. She talks about the impact of the Tax Cuts and Jobs Act (TCJA) and the Wayfair decision on state tax policy. Katherine also emphasizes the need for states to adjust to the new normal, including the rise of remote work and the need to attract businesses and taxpayers.
Topics Discussed in this Episode:
- The role of the Tax Foundation
- Trends in tax policy over the past five years
- States’ unexpected revenue surplus post-pandemic
- How income tax complexity makes it hard to predict liabilities
- Challenges of property assessments and the public perception of taxes
- Helping the public understand tax systems
- “The Tax Foundation is a nonprofit, nonpartisan 501 tax policy research organization and we’ve actually been around for over 85 years now and we work to advance sound tax policy at the state, federal, and international levels.” -Katherine Loughead [00:50]
- “Switching from federal to state has been interesting because so much happens every single year at the state level. So there are many ways you can help move the needle in the right direction. Instead of being a very small part of a big wheel, you’re able to be one of a few players that are really having an impact, and that’s been highly rewarding.” -Katherine Loughead [05:35]
- “We’ve had, of course, the pandemic and all of the state responses to that, everything that’s happened at the federal level since then with federal aid and then now coming out of the pandemic, we’ve seen states have a lot more revenue on hand than they initially expected.” -Katherine Loughead [12:13]
- “People remember exactly what they paid in property taxes in a certain year, but don’t add up all their receipts or have a strong sense of how much they’re paying in sales taxes. It’s a little bit here and a little bit there, but over time that adds up quite a bit. With income taxes, there’s so much complexity to the income tax system where you get exemptions here and deductions there and then clawbacks here.” -Katherine Loughead [16:01]
[00:00:00] Welcome to SALTovation.
Meredith: The SALTovation Show is a podcast series featuring the leading voices in salt, where we talk about the issues and strategies to help you make sense of state and local tax. Hello, Catherine. Thank you so much for being here with us today. We really appreciate your time.
Katherine Loughead: Thanks so much for having me.
Katherine Loughead: It's great to be here.
Meredith: And so as a senior policy analyst at the Tax Foundation, what does that actually mean and what do you do?
Katherine Loughead: is a really good question. And I think to answer that question, it might help to explain just a little bit more about what the Tax Foundation does. And then I'll talk a little bit about my role here, but the Tax Foundation is a nonprofit, nonpartisan 501c3 tax policy research organization.
Katherine Loughead: And we've actually been around for over 85 years now. And we work to advance. Sound tax policy at the state, federal, and international levels. And so, our primary goal is [00:01:00] really to conduct tax policy research to help inform policy deliberations at all levels of government. So, we regularly testify before state, federal, and international governments.
Katherine Loughead: State tax committees when they're deciding tax policy issues. We also write a lot of blog posts and white papers to help advance the discussion. And we spend a lot of time talking to media just to help inform the debate, uh, since tax policy is really confusing. So we like to try to help cut through some of that confusion and simplify it as much as possible.
Katherine Loughead: And so I've been with the Tax Foundation for five years now, and I basically handle a subset of the states. And so just try to inform the debate however we can. And again, with legislative testimony or by research and writing. We have a lot of annual products at the Tax Foundation that readers might be familiar with or listeners.
Katherine Loughead: Um, the state business tax climate index and facts and figures. And then we also are just constantly publishing things on our [00:02:00] website as well. Like
Judy: what are champagne taxes in your state, Tate? We love those. at the new year. Love that. I'm not a beer fan, but champagne. I like, um, yeah, I love that. So fun.
Judy: It's such a relative perspective. Uh, you've only been there five years. So it's interesting because no one listened to you in Nevada when they enacted the commerce tax. Cause you said the tax foundation said not a good tax policy, but they did it anyway.
Katherine Loughead: Unfortunately, sometimes they don't do what they want, but we do the best we can to push things in a good direction.
Judy: We appreciate you. Honestly, you've been a godsend for me. When I left the trappings of the big four public accounting firms of the nation, I relied heavily on tax foundation information and comparisons and contrasts. When I was at a regional firm and I didn't have a Washington National Tax and the broad basis support.
Judy: And it really has made a huge difference for me. So thank you so much for taking the time to speak with us today. Oh,
Katherine Loughead: thanks. I'm really glad to hear that. We love hearing those stories. And I
Judy: support [00:03:00] you. I donate. We
Katherine Loughead: appreciate that. So,
Meredith: prior to joining the Tax Foundation, you worked for a couple members of Congress, um, and there's a couple of specific questions we're going to ask you about that related to the TCJA, but how did you pivot from working in Congress to the Tax Foundation?
Meredith: Like what was that transition like?
Katherine Loughead: Yeah, that's a really good question and I actually love telling this story because I spent the first four years out of college working in Congress. That was a really fun way to start my career and I'm really grateful for the time I had there. But basically during the TCJA debate, um, I was kind of a lower level policy staffer for a member of Congress and I handled more than just tax issues.
Katherine Loughead: I handled a wide variety of issues. And the TCGA was really a lot of members of Congress first big exposure to all the ins and outs of the tax code. Because if you [00:04:00] think about it, it had been 31 years since there had been a major overhaul of the tax code with the Reagan tax reforms of 1986 and little things that happened here and there, but nothing major.
Katherine Loughead: So for me and for a lot of other staffers and even members of Congress. This was their first time really digging in at a super deep granular level. And so we all had a lot to learn, especially if you aren't on the ways and means committee, if you're on ways and means or Senate finance, you know what you're talking about.
Katherine Loughead: And you have a really good sense of what's going on on tax. policy, but for rank and file members or newer members, this was a big undertaking to, you know, get up to speed on everything and have to answer to constituents about these issues. And so, um, at that time, I remember just having a lot of questions as different.
Katherine Loughead: topics of debate came up, and every time I Googled a question, almost inevitably, the first answer that would pop up would be from the Tax Foundation, and normally they had blogged on that [00:05:00] very question that very day. And so, I just realized how timely they were, and how good Tax Foundation has been at really, um, simplifying tax policy and bringing it down to a level that anyone can understand.
Katherine Loughead: And so, I really, just during that time, loved tax policy and really just got very interested in taxes specifically. So, um, kind of ended up doing some informational interviews here and ended up on the state tax policy team, which has been a lot of fun and quite an adventure. You know, switching from the public sector to now a think tank has been great, but also switching from federal to state has been kind of interesting because so much happens every single year at the state level.
Katherine Loughead: So many ways you can help move the needle in the right direction. And, you know, instead of being a very small cop or a small part of a big wheel, you're able [00:06:00] to be one of a few players that's really having an impact. And that's been highly rewarding. So that's kind of a bit funny. I think the
Judy: same thing.
Judy: I remember I started. federal doing tax compliance, even though I'm a CPA and an attorney. And I remember thinking there was a revenue rolling or a red proc out there, like that answer has been found, but with state tax, you can be a little creative because the rules haven't always been written to apply to the business at hand.
Judy: So you can advocate for good tax policy, work individually, collectively, really enjoy that too. That's funny. I assume mayor, I think mayor has that same view. A lot of us in the team at tax ops. really feel that way about SALT and maybe started in federal and pivoted to state and local. That's very interesting you share that same, um, view.
Katherine Loughead: That's
Meredith: fascinating. I love that. Yeah, me and Amelie, I started just in state and local tax based on opportunity and then it just was really interesting, right? Because you... You could have switched. I could have. But you didn't. Um, but I was, you know, one of the first things that I did and I [00:07:00] mentioned it before on the podcast is...
Meredith: I did a 50 state analysis of the taxability of downloaded movies. And so this is 2004, 2005, where it's like, downloaded movies were a very new concept, right? And so here we are still kind of monkeying around with. However, many years later, almost 20 years later, the differences, but they still have a direct impact.
Judy: So, and thank God for downloading movies during COVID. I don't know what I would have done without freaking Wi Fi and the internet. I don't know if we would have survived and had some entertainment and happiness and laughed, you know, because we got our minds off. The catastrophe all around and you're like in the heart of it in DC.
Katherine Loughead: you in DC? I'm in DC. Yeah.
Judy: Okay. So a lot of humans live there. A lot of policy happening there. Yeah. That's a stressful. That would have been probably very stressful. Stressful for us. And we're just, we're both, we live in Denver, so, but our team is spread throughout the US. So we all had a very different [00:08:00] view of our experience.
Meredith: So are there, um, kind of any, anything, stories, horror stories, victory stories that you can share with us as you were kind of getting your feet wet with TCJA and share some of those. Some of those with us who weren't on the ground and as CPAs just kind of have to live through the aftermath of what that means.
Katherine Loughead: Yeah, I think I , I think I can, um, you know, there were, there were a, so I was just a lower level policy staffer, so I was like in my early twenties, so I was not, Making decisions behind closed doors. I was not drafting this legislation and there were certainly higher level staffers doing all of that. But you still probably ate plenty
Meredith: of pizza and worked late nights
Katherine Loughead: as a result of that.
Katherine Loughead: There were lots, lots of late nights, you know, there was. I just remember, you know, sitting at my desk and the phone would be ringing off the hook. So every single [00:09:00] staffer in those back offices was answering the phone, you know, and there was a lot of confusion. I think a lot of panic about what is happening on taxes.
Katherine Loughead: And so, um, it was really critical to try to cut through some of that complexity and really communicate with constituents, put some people at ease, you know, from my perspective, really. I thought tax reform was a great idea and thought this would be something that was necessary and would help, uh, just help taxpayers in the country, brings a little more of a pro growth angle to the tax code and make the tax code.
Katherine Loughead: I guess a little less or help the tax code get out of the way of success a little bit more. And so, you know, trying to tell that story, it was definitely complex because of the way our political system is, you know, there's a lot of strong feelings on all sides of a lot of different issues. But I remember a lot of late nights and, um, [00:10:00] but ultimately it was, it was really rewarding to be a part of that and just.
Katherine Loughead: to learn more about taxes and to really enjoy learning about taxes, too, because you're always learning and you probably feel the same way, but in the tax space, even if you've been in it for years or decades, you never are going to know everything. There's always more to learn and keep, keep up with.
Meredith: Well, for sure.
Meredith: And especially with that pivot. you know, going and kind of being a part of the TCGA, which like you said, was a kind of federal concept enacted by Congress, you know, shifting to the tax foundation and specializing, you know, for lack of a better term, and a few of the states and doing policy research on that, you know, what are.
Meredith: What are some of the things that you've seen over your last five years, policy wise, trends, you know, cause here we really like to talk through trends and just kind of how some of the economic impact impacts trends, you know, right now we're seeing a huge uptick in audits just for our clients. So from a trending [00:11:00] policy perspective, what
Katherine Loughead: is What have you seen?
Katherine Loughead: Yeah. Well, you know, it's been a really wild five years or so in tax policy because, you know, things had been fairly quiet until the TCJA. And then after that was enacted, you had state conformity where all of these states are trying to figure out how the federal tax reforms would impact them and their taxpayers because some of the base broadening, you know, came through to state tax codes where they conform to some of the federal tax base.
Katherine Loughead: And so that would have resulted in tax increases in a lot of states. And so we saw a lot of states adjusting their tax codes to, you know, bring rates down in response to that or to just decide what provisions they wanted to conform to and which they wanted to decouple from. So that was kind of the immediate impact there.
Katherine Loughead: And then we also then had the 2018 Wayfair decision that really has [00:12:00] fundamentally changed the sales tax landscape. And we're still adjusting to that where states have kind of preliminarily decided how they want remote. Sellers and marketplace facilitators to collect and when they wanna collect. But now that kind of is spinning a bit out of control, uh, with a lot of different, you know, states wanting to latch on and say, well, you can collect these fees as well, or these excise taxes, not just the sales tax.
Katherine Loughead: And there's been a lot of complexity and so I think there's a. work to still be done there. You know, we've had, of course, the pandemic and all of the state responses to that, everything that's happened at the federal level since then with federal aid. And then now coming out of the pandemic, we've seen states have a lot more revenue on hand than they initially expected.
Katherine Loughead: So, you know, I think we 2020, we're pretty panicked for many reasons, but there was. This is going to be really devastating to, uh, [00:13:00] state coffers, to local governments, that businesses would really have a hard time. And so it certainly there were plenty of businesses that did have a very hard time, but the federal government came in with a ton of additional aid.
Katherine Loughead: And then we ended up seeing revenue levels actually stay pretty strong, which was surprising to most people where a lot of sales tax collections dropped a little bit for a few months, but then really everything ticked back up pretty quickly and states remained on an upward growth trajectory. And then that continued in 2021 and 2022.
Katherine Loughead: And now this year where we're seeing high levels of growth, states are bringing in a ton of revenue still, you know, they're way above.
Katherine Loughead: And so a lot of states are looking for ways to now adjust to the new normal with the rise of remote work. They're looking for ways to attract businesses and taxpayers who can maybe keep their city based job, but live [00:14:00] where there's a lower cost of living. And so a lot of states have now had to adjust to that and are, there's really this.
Katherine Loughead: uptick in competitive competitiveness where I can talk about this more later if you want, but just there's been so many states enacting income tax reforms and relief and just there's been a big emphasis on how states can make their tax codes more competitive. Don't you think
Judy: we're going to get rid of all the income taxes and just go to transaction level taxes?
Katherine Loughead: I I think that would be very difficult, but well,
Judy: financially, I think it would, but I think what I think is so interesting, like I was, we were, we were just getting to know each other before the call. I was like, Texas, everyone's like, Oh, there's no individual income tax. Have you looked at the property taxes in Texas?
Judy: They're super high. They're way higher than what we pay here in Colorado. So people don't look at the whole pie when they look at the. pieces. They look at the political issue. That's why I think it's so interesting with sales taxes. No one really knows all the [00:15:00] things that are taxed. They don't realize the impact.
Judy: It's like 30 cents here, whatever. It's very incremental unless you're buying like a stove or, you know, a car, then taxes are huge amounts of your purchase price. But I think people don't realize when exemptions are added finagling goes, but everybody gets the income tax
Katherine Loughead: rate. That's a really good point.
Katherine Loughead: Yeah, we're especially with income taxes, but even with property taxes to, you know, we consistently hear a lot of complaints about property taxes, and I know legislators hear a ton of complaints on property taxes, but there's Some pros and cons to that where really the property tax is a good, stable, transparent, and can be a pretty neutral source of revenue, but because you are paying in a lump sum and you're seeing your bill all at once, it can be really shocking to people and you really do have to plan for it, plan for that liability and plan that it might grow if you're.
Katherine Loughead: Property valuations rise and things like that, but you know, we're [00:16:00] all also paying, or most of us, depends on what state you live in, income taxes and sales taxes. And a lot of people remember exactly what they paid in property taxes in a certain year, but don't add, you know, don't add up all there. or have a strong sense of how much they're paying in sales taxes.
Katherine Loughead: It's a little bit here and a little bit there, but over time, that adds up quite a bit. And with income taxes, there's so much complexity to the income tax system where you're, you know, you get exemptions here and deductions there and then, you know, clawbacks here. So it's hard to know and be able to predict from year to year what your income tax liability might be.
Katherine Loughead: And even something as simple as, you know, Marginal, you know, graduated rate structures, there's a lot of confusion where a lot of people think they're paying just what one single rate
Meredith: on all of my income versus a forget that like, well, the first 10 percent isn't taxed and they're not 10 percent like 10, 000 isn't taxed.
Meredith: And then it's the next tranche is at 5 percent or whatever
Katherine Loughead: it [00:17:00] is, right? Yeah. So people don't often know what their effective rate is. And then you take
Meredith: another count like deductions and all that. Yeah, it's, it's really, it's really difficult. Judy, like you said that it's the perception, right? Like I, you know, Denver, we had a really large in the metro surrounding areas had a really large increase where my property assessed value went up almost, I think, 85 percent on my home.
Meredith: And what's, and I, and I abate, and I, you know, challenged it and I lost, so I got denied. Um, and I think what's difficult about that is, you know, the assessment period is three years ago where if you told me that, you know, there's no way on planet earth that I could sell my house today for the value that Denver thinks it is.
Meredith: Um, and I generally tend to be kind of pro tax. I appreciate that, you know, taxes provide [00:18:00] opportunities for a lot of people. I like parks. I like roads that don't break my car. So and you know, my husband is in public education, so I appreciate schools, but some of that is just like, well, there's kind of just the public facing piece that becomes the challenge of what that means.
Meredith: And also, you know, doing the math that changes my mortgage for literally, you know, 150 a month, which is. It's unexpected. So it's just, yeah, it's really, it's really difficult. And as someone who lives, works and breathes in taxes, there's a lot of, you know, challenges and stigmas and whatnot that, you know, that have to be overcome.
Meredith: And so I think it's, it's nice. that obviously you have, you know, the tax foundation and people such as yourselves working with, you know, the governments to kind of understand that, but also put out, you know, context for the people should they try to search for it and, and put it in ways that you can understand because it is very [00:19:00] difficult.
Katherine Loughead: Yeah, exactly. It's really rewarding to help. You know, cut through a lot of that complexity and try to make it easier for folks to understand how their tax systems work and, you know, get some sense of what's really going on.
Meredith: This podcast is for educational purposes only and is not intended
Meredith: nor should it be relied upon as legal, tax, accounting, or investment advice.
Meredith: You should consult with a competent
Meredith: professional to discuss specifics of your situation and the applicability of the information presented.
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