(CNSNews.com) - State tax policy has undergone a fundamental transition over the past 25 years as lawmakers have faced changing state economies and taxes have become a major campaign issue, a report from a conservative tax reform group indicates.

"What we see in this study is good news along with red flags for the future," said Grover Norquist, president of Americans for Tax Reform (ATR). "State lawmakers have seen that voting for higher taxes means voting themselves out of office and forcing their residents and businesses to move to low-tax states."

Entitled "State Tax Trends Over 25 Years: Tax Increases Down, Revenue Sources Shifting," the paper was released by ATR on Monday and listed four major findings.

The first key point is that tax increases are shrinking, particularly in recessions.

"Whereas raising taxes to fund spending increases was once the norm during economic expansions and contractions, a distinct shift occurred following the 1990 recession period," the study notes.

During that time, state-elected officials were voted out of office in response to the substantial tax increases they enacted, the report indicates. The election losses served as a key lesson, and new governors and lawmakers seized the opportunity to cut taxes as the nation entered a sustained period of economic expansion.

Second, the paper states that tax cuts during periods of economic expansion are becoming more popular.

"What we used to see in the states is a recession with steep, broad tax increases followed by an expansion with more tax increases and enough spending to go around to make France jealous," Norquist said. "Now, we are seeing smaller tax increases in recessions and tax cuts in expansion."

The third point in the report is that states are turning away from income tax hikes to targeted tax increases, such as taxes on tobacco products, and toward other forms of "double taxation."

Noting that "there is still not an appetite to cut spending," the study indicates that "by targeting their tax increases to narrower segments of the population, legislators divide taxpayers into smaller groups and minimize voter backlash."

"States have found tobacco to be their biggest cash cow" in the recession that began in 2001, the study reports. "Tobacco tax increases represented 30 percent of tax increases during the last recession, compared to just 5 percent during the 1990s recession. In 2002 alone, 20 states raised their tobacco taxes."

However, "tobacco is not the only scapegoat targeted in the shifting tax policies," the ATR paper notes. "In 2006, 31 states debated alcohol tax increases, which seek to increase taxes on a product already subject to a sales tax.

"This [trend] is also emerging in telecommunications and housing," the report states.

Finally, the study indicates that states with high tax burdens continually lose residents and the tax revenue based on their incomes to lower-tax states.

During the recession of the 1990s, "tax-raising states began to feel the pressure as their higher-income residents, who pay a disproportionate share of state taxes, began to flee," the paper states. In an attempt to halt that trend, "state income taxes were cut nine consecutive years."

"In 2004 alone, the nine states with no income tax gained an additional 323,579 domestic residents from the 41 states with an income tax," the report notes, removing $10.6 billion of adjusted gross income from those states' economies.

Nick Johnson, director of the State Fiscal Project at the liberal Center on Budget and Policy Priorities, told Cybercast News Service that he agrees with most of the findings in the new ATR study.

But he argued that at least part of the change in state finances during the 25-year period could be attributed to "the increase in the stock market and also due to increasing income inequality, so states had more money with which to finance tax cuts in the 1990s and also had more reserves with which to weather the recent crisis."

Johnson also believes the ATR report overstates the impact of income taxes on the desire of people to move from one state to another.

"There's not much effect, if any, of taxes on migration," he said. "State taxes just aren't high enough to affect most people's moving decisions."

On the other hand, if a state cuts taxes, it "may also be reducing some of the services that studies show people do move for, such as education, a clean environment or decent transportation," Johnson claimed.

"Now, I'm not denying that people are moving to Florida and Texas, but I think they're moving for a lot of other reasons than the absence of state income taxes," he stated. "And it's easier to make that argument in December, when I'm looking out my window at a snowstorm and saying: 'People are definitely moving to Florida.'"

Norquist said he is pleased with the trends, but much remains to be done to improve how state governments get their funding and what they do with the money they take from taxpayers.

"Great progress has been made over the last 25 years," Norquist concluded, "but states need to rein in spending and seek market-based health care and pension reforms to help ward off future tax increases and to build on the gains of the past."

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