State and Local Taxes
State and local governments also collect taxes to finance essential public goods and services. In 2008 state and local governments collected $1.3 trillion in tax receipts. State and local governments also collected large sums of money from nontax sources. In fact, only about one-half of the revenues collected by state governments came from taxes, and only about one-third of all local revenues came directly from taxes. The two largest sources of nontax revenues for state and local governments are charges for certain services such as hospital care and higher education, and from grants or other intergovernmental financial transfers. Table 7.5 compares the revenue sources for state governments with those of local governments.[1]
State taxes represent nearly one-half of all state government revenues collected each year. In 2008 state governments collected about $1.6 trillion in total revenues: $782 billion in tax revenues and $837 billion in nontax revenues. Most tax revenues at the state level came from the sales tax and state individual income tax. A sales tax is a tax placed on many types of goods and services that people purchase. In 2008, for example, total state sales tax receipts were $241 billion. To reduce the burden on low-income households, most state
Table 7.5 Revenue Sources for State and Local Governments
|
Revenue Sources |
State Governments (%) |
Local Governments (%) |
|
Tax revenues |
48.3 |
35.9 |
|
Intergovernmental revenues |
27.5 |
34.3 |
|
Charges and miscellaneous |
17.7 |
21.4 |
|
Other revenues |
6.5 |
8.4 |
|
Total from all revenue sources |
100.0 |
100.0 |
sales taxes include exemptions for food and prescription drugs. In 2012 there was a sales tax in 45 out of the 50 states.[2]
State individual income taxes raised an additional $278 billion for state governments in 2008. The individual income tax is a tax on people's income. Most state individual income taxes were mildly progressive. This means that high-income households were taxed at a higher rate than low-income households in most states. In 2012, there were 43 states with an income tax. Of those states with an income tax, 36 had a progressive income tax and seven had a flat rate, a type of proportional tax in which all households are taxed at the same tax rate regardless of household income. Other taxes generating revenue for states included excise taxes, corporate income taxes, property taxes, death and gift taxes, and severance taxes.[3]
Tax revenues account for about one-third of all local government revenues collected each year. In 2008 local governments collected about $1.5 trillion in total revenues: $549 billion in local tax revenues, and $982 billion in nontax revenues. Most of the tax revenues at the local level were generated by the local property tax. A property tax is a tax on personal property such as a house, building, undeveloped property, or even a car. In 2008, $397 billion was collected in local property taxes—more than 70 percent of all tax receipts by local governments.[4] The property tax is based on the assessed value of a property. Typically, the amount owed in property taxes is determined by a mill rate. A mill rate tells the property owner how many dollars are owed for each $1,000 in property the taxpayer owns. To figure a person's property tax bill each year, simply multiply the mill rate times the number of thousands at which the property is valued. Suppose a town has a mill rate of 30. If Derek owned a house assessed at $100,000 he would owe the town $3,000 in property taxes. This is because there are 100 thousands in $100,000 (100,000∕1,000 =100). If the mill rate increased to 32 the following year, Derek would owe the town $3,200 (32 x 100 = $3,200) in local property taxes.
- [1] U.S. Bureau of the Census, “Table 451: State Governments, Summary of Finances, 1990 to 2008,” “Table 455: Local Governments, Revenue by State, 2008,” Statistical Abstract of the United States: 2012 (Washington, DC: U.S. Government Printing Office), 2011, 286, 292-293.
- [2] Federation of Tax Administrators (FTA), “State Sales Tax Rates and Food & Drug Exemptions,” January 1, 2012; U.S. Census Bureau, “Table 451: State Governments, Summary of Finances, 1990 to 2008,” Statistical Abstract of the United States: 2012 (Washington, DC: U.S. Government Printing Office), 2011, 286; Telles, Rudy, Sheila O’Sullivan, and Jesse Willhide, State Government Tax Collections Summary Report: 2011 (Washington, DC: U.S. Department of Commerce), April 12, 2012, 1-4. U.S. Bureau of the Census, “Table 455. Local Governments—Revenue by State: 2008,” Statistical Abstract of the United States: 2012 (Washington, DC: U.S. Government Printing Office), 2011, 292-293.
- [3] FTA, “State Individual Income Taxes,” January 1, 2012; U.S. Bureau of the Census, “Table 451. State Governments—Summary of Finances: 1990 to 2008,” Statistical Abstract of the United States: 2012 (Washington, DC: U.S. Government Printing Office), 2011, 286; and Rudy Telles, Sheila O’Sullivan, and Jesse Willhide, State Government Tax Collections Summary Report: 2011 (Washington, DC: U.S. Department of Commerce), April 12, 2012, 1–4.
- [4] U.S. Bureau of the Census, “Table 455: Local Governments, Revenue by State, 2008,” Statistical Abstract of the United States: 2012 (Washington, DC: U.S. Government Printing Office), 2011, 292-293.
