State and Local Tax Trends: An Analysis of Revenue from Property, Income, Sales and Other Taxes
Putnam, Karl, Zlatkovich, Charles P., The Government Accountants Journal
State and local taxes increased relative to overall economic activity during the 1980s, but have not reached the alltime high levels experienced during the 1970s. A slight decline in relative state and local tax levels durin the early 1980s continued a trend away from the high tax rates of the 1970s. State and local tax rates turned upward again in 1982, peaked in 1988 and declined slightly in 1989 and 1990.
While both state taxes and local taxes increased durin the decade, the increase in local taxes was more rapid than the increase in state taxes. Local taxes topped 40 percent of the combined total of state and local taxes for the first time in 1990.
Income taxes were the fastest growing type of tax at the state level, while sales taxes increased most rapidly among local taxes. Althoughlocaljurisdictions decreased their dependence on property taxes as a percentage of total local taxes during the decade, local tax rates increased enough that property taxes actually increased slightly as a percentage of total state and local taxation.
A long steady rise in state and local tax rates relative to income that began before 1950 continued through 1973, In 1973 state and local taxes peaked at an all-time high level of 11.69 percent of total personal income, State and local taxes declined relative to income during the next several years, partly in response to the so-called "tax revolt." The decline continued through 1981, reaching 10.26 percent of income, the lowest level since the late 1960s, Since 1981, state and local tax rates have generally risen again, peaking in 1988 at 11.15 percent of income and declining slightly I to 11.10 percent in 1990, Table 1 shows the overall trend of state and local taxes during the past four decades and several high and low points. (Table 1 omitted)
TRENDS DURING THE 1980S
Nationwide, local taxes increased more rapidly than state taxes during the 1980s, particularly durin the last half of the decade, In 1985, local taxes represented 38 percent of total state and local taxation: by 1990, the local percentage had increased to 40,
Individual and corporate income taxes produced the largest share of state tax revenue throughout the decade, and the portion even increased during the decade, In 1980, income taxes accounted for 37 percent of all state tax revenue, By 1990, income taxes represented 39 percent of all state taxes, down slightly from a peak of 40 percent in 1989. Sales taxes were the second most important source of state tax revenues nationwide, representing almost a third of total state tax revenues. Sales taxes also rose during the decade, rising from 31 percent of the total in 1980 to 33 percent in 1990. Property taxes held fairly steady at about 2 percent of total state tax revenues during the decade. All other types of state taxes declined relatively during the decade. The nature and size of such taxes varies greatly from state to state. In energy-producing states such as Alaska and Wyoming, severance taxes are significant. Nevada derives a high portion of its revenue from taxes on the gambling and visitor industries. Nationwide, all other taxes declined from 30 percent of total state tax revenues in 1980 to 26 percent in 1990.
For local governments, the property tax remains the undisputed leader among tax revenue sources. Property taxes have declined slightly as a percentage of total local taxes, but still represent almost threefourths of all local tax revenue. Sales taxes and other taxes have increased slightly in importance during the past decade, while local income taxes have remained fairly steady as a local government revenue source.
TOTAL TAX RATES
The division of responsibility between state and localjurisdictions for such important (and costly) functions as education and transportation varies significantly from state to state. For this reason, combinin state and local totals provides the most equitable basis for making interstate comparisons of tax levels. …