State 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. and fee collections grew by 6.7 percent between 1994 and 1995. The growth in 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. -adjusted tax collections continues a trend that began more than a decade ago. The three fastest growing categories of state collections were corporate income taxes (14 percent), 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 (11.4 percent), and tobacco taxes (11.2 percent).
On average, economic growth in 1995 accounted for almost all of the growth in state collections. For the nation, state collections grew 0.26 percent faster than personal income. That growth rate compares with an inflation-adjusted decade-long average of 0.22 percent. However, the growth rate of state tax collections relative to personal income growth varies substantially from state to state. From 1994 to 1995, the five states that had the highest tax growth relative to personal income growth were Alaska, Missouri, Michigan, North Dakota, and Connecticut. The five states that had the highest personal income growth relative to tax growth were Wyoming, New Mexico, Vermont, Hawaii, and New Jersey.
The growth of taxes relative to income does not necessarily correlate with the overall tax burden in a state. For example, in 1995, Alaska had the highest tax burden per $1,000 of personal income and it recorded the fastest tax growth between 1994 and 1995. Yet, over the prior 10 years, Alaska had the slowest tax growth. These anomalies arise because Alaska enjoys enormous tax inflow from oil production, making it a unique case. New Mexico ranked third among the states in terms of taxes per $1,000 of personal income, but it recorded the second slowest tax growth. (If Washington, D.C., were a state, it would have the highest ranking tax burden.)Share