Census Data Shows Tax Revenue Recovery following Recession

(from Census Bureau report)

Despite claims of state revenue shortages since the recession, steadily increasing revenues have nearly pushed total state collections back to pre-recession levels. After adjusting 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. , 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 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. es and gross receipts taxA gross receipts tax is a tax applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. es 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 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 are typically levied by local governments (and you can find Census data on local tax collections here), 36 states levy some sort of statewide property tax, 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 tax 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 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 and a 21.2 percent drop in revenue from corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es.

 

 

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