Census Data Shows Tax Revenue Recovery following Recession

(from Census Bureau report)

Despite claims of state revenue shortages since the recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. , steadily increasing revenues have nearly pushed total state collections back to pre-recession levels. After adjusting for inflation, the difference between collections at the peak of the bubble and current collections is only about 2 percent.

The Census survey classifies collections using five broad categories, which can be seen in the figure below. Revenue from sales taxes and gross receipts taxes make up over 46 percent of the total tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. at $309 billion, followed by income taxes with nearly 42 percent. License, property, and other taxes account for the final 11.8 percent of total collections. While property taxes are typically levied by local governments (and you can find Census data on local 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. collections here), 36 states levy some sort of statewide 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. , which make up 1.6 percent of total collections.

(from Census Bureau report)

While total state revenues dropped in 2009, collections from property and license taxes increased by 2.5 percent and 0.16 percent respectively. “Other” taxes increased by 24.6 percent. However, because these three tax categories only make up about 10 percent of total state collections, their stability has little impact on the stability of total tax revenues for states.

The sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. is typically more insulated from fluctuations in the economy. Since 2007, the standard deviation of year-to-year percent change for income taxes was 8.9 percent compared to sales taxes at only 3.8 percent. This relative stability was confirmed during the recession: between 2008 and 2009, sales tax collections only decreased 4.5 percent, compared to an 11.5 percent drop in revenues from individual income taxes and a 21.2 percent drop in revenue from corporate income taxes.

See more of our work on post-recession collections here.