States Rely More and More on Income Taxes

State Legislatures, September 1998 | Go to article overview

States Rely More and More on Income Taxes


Will the personal income tax soon be the states' No. 1 source of revenue?

For decades, the most important source for states has been the sales tax, but that could change. Over time, reliance on the personal income tax has increased much more quickly than reliance on any other state tax source.

Collections from the tax rose from 19 percent of total tax revenue in 1970 to 33 percent in 1997. Revenue from the sales tax rose more slowly, from 30 percent to 33 percent. If the trend continues, the share of state revenues from the personal income tax could surpass-the share from the sales tax this year.

Forty-one states include the personal income tax in their mix of revenue sources. Five states - Ohio, Pennsylvania, Rhode Island, New Jersey and Connecticut - have adopted the tax since 1970, which helps explain the growth in collections. (Only one state - Alaska - repealed its personal income tax.)

Another factor in the increase in the income tax share is a natural outgrowth of the response of these taxes to economic growth.

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