The growing trend in recent years has been to raise revenue in ways that are politically feasible, which is why new Census data shows that the fastest growing taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. at the state and local level has been tobacco taxes, despite rapidly growing property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es. Raising taxes on tobacco products is an easy political sell because tobacco tax revenue benefits all taxpayers but only a minority of people must pay any significant amount of the tax.
The following table shows the percent change in tax revenue combined at the state/local level by type of tax from fiscal year 2000 through fiscal year 2005. The figures are not adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. , and are therefore nominal. Of the big tax sources (property, income and sales), property taxes have risen the most, followed by general sales.
Knowing what we know generally about the incidence of these taxes, it appears as if those tax sources that are growing more rapidly are the more regressive taxA regressive tax is one where the average tax burden decreases with income. Low-income taxpayers pay a disproportionate share of the tax burden, while middle- and high-income taxpayers shoulder a relatively small tax burden. es like general sales, public utilities, and tobacco (and property somewhat, depending on the incidence assumption one makes). Individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. es, on the other hand, are the slowest growing source of tax revenue for state and local governments in percent terms.
| Type of Tax (Census defined) |
State & Local Tax Revenue Increase from 2000 – 2005 |
| Total Tax Collections | 25.7% |
| Property Taxes | 34.7% |
| General Sales | 22.2% |
| Motor Fuel | 15.6% |
| Alcoholic Beverages | 17.1% |
| Tobacco Products | 55.4% |
| Public Utilities | 26.5% |
|
Other Selective |
34.2% |
| Individual Income | 13.8% |
| Corporate Income | 19.6% |
| Motor Vehicle Licenses | 19.8% |
| Other Taxes | 48.1% |
Note: This table does not look at the growth in what Census defines as “non-tax revenue sources” such as tolls, lotteries, etc.
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