Since 2020, many states have been cutting their income tax rates and narrowing their bases, while others have been considering wealth tax proposals and other progressive revenue tools. These divergent actions raise critical questions about modern fiscal federalism. When is subnational redistribution feasible? When does tax competition instead lock states into a uniform tax-cut script? And how does federal tax policy impact states’ choices?
Kirk Stark’s article, Taxation, Redistribution, and the Urban-Rural Divide, offers an interesting and useful evaluation of these questions by assessing modern fiscal federalism through a spatial lens built on insights from a variety of fields, including economic geography, U.S. history, and political science. His article recognizes that the traditional “textbook” model of fiscal federalism often dismisses subnational progressive taxation as implausible. The logic, rooted in the Tiebout model, is simple: if a state tries to “tax the rich,” the rich—or their mobile capital—will simply move. This understanding conventionally leaves the federal government to address equity and progressivity while states instead compete on service quality.
This story is, of course, incomplete in practice. Mobility is far from homogeneous, either interpersonally or interregionally. In addition, the ‘stickiness’ of urban markets is a known phenomenon in economic geography, which means that urban locations have greater power to impose taxes than the traditional account permits. Stark uses these insights to evaluate the reality of “asymmetric tax competition” between urban and rural states.
Of course, the story of urbanism is largely one about localities, and other scholars have rightfully identified that cities, rather than states, are often the proper subunit for analysis. On this point, Stark’s article implicitly recognizes that states still call the shots in many ways, especially as we see greater levels of preemption of local law by states across areas of law, including tax.
Stark also recognizes that classifying states as urban or rural is not an obvious endeavor, and he starts the article by confronting this challenge. This was a particularly interesting part of the article to me, because it required me to think more deeply about how urbanism and rurality look different under different lenses. Specifically, Stark offered and assessed three different metrics for measuring urbanism or rurality—census urban population shares, USDA rural-urban continuum codes, and census-tract level density indices. States fare differently under different metrics, and some states—like my own state of Nebraska—fall on different sides of the urban-rural divide depending on the metric used.
On its own, this introduction of different methodologies for discussing the urban-rural divide is useful for those who think about the effect of place on tax policy and the effect of tax policy on place. The law and rurality literature, in particular, invites more meaningful and granular discussions of rural America, and Stark’s incorporation of this element of analysis into tax policy is welcome and important.
Stark adds greater nuance to his article by then categorizing state tax structures into four quadrants based on their overall tax burdens (high or low) and their relative tax progressivities (high or low). That exercise facilitates an interesting geographic and historic assessment of state-tax policies across the country. As he shows, major urban agglomerations appear in all four quadrants, suggesting that density is not determinative. Nevertheless, urban states along the coasts disproportionately occupy the high-tax/high-progressivity quadrant, and rural states cluster instead toward the low-tax/regressive quadrant. These results might seem intuitive, but Stark provides an analytic, data-oriented framework for these categorizations.
I also particularly liked that the article then explores how this “sorting” results from historic and geographic factors that supplement a purely political account. In particular, Stark carefully evaluates the tax policies of the American South, and he explains how the history of slavery and Reconstruction Era policies shape state tax policy to this day. He also looks at “outlier” rural and urban states—Maine and Vermont (rural/progressive states) and Texas and Florida (urban/regressive states)—and investigates the histories that explain their tax structures. These explorations demonstrate the importance of looking at the factors that contribute to state fiscal policy—and to state fiscal health more broadly.
The article then flips the lens upward and shows how rural-urban dynamics shape federal tax policy as well. Stark explains how the same urban concentrations that allow for subnational redistribution also skew tax politics against redistribution at the federal level. Principally, because progressive voters are geographically clustered, they have difficulty translating their preferences into progressive federal tax legislation given equal state representation in the Senate. The countermajoritarian nature of House districting and the Electoral college have similar effects. Stark links these anti-urban structural biases to the regressive direction of major federal tax reforms over the last quarter-century.
This discussion of how the urban-rural divide impacts federal tax policy is both interesting on its own and particularly important for understanding the efforts by some states to impose progressive income taxes or taxes on wealth. The classic account of American fiscal federalism assigns to the federal government the role of redistribution, providing a progressive backstop to state-level regressivity. But if our constitutional anti-urban bias makes that backstop unreliable, then progressivity cannot be treated as primarily a federal responsibility. Stark’s article therefore explains both why states can impose taxes that once seemed unwise and why those taxes may be desirable.
Overall, the article explains why subnational redistribution can succeed where the textbook model predicts futility, why federal redistribution underperforms even when national majorities favor it, and why the United States may be headed toward an increasingly asymmetric fiscal union. Stark’s article thus provides readers with a deeper understanding of American fiscal federalism and a stronger foundation for confronting modern day tax-reform politics.
