Historical State and Local Revenue Sources

October 28, 2009

Most funding for state and local governments comes from a few, well established revenue sources: property taxes, sales taxes, and personal and corporate income taxes. While all of these taxes have been major sources of revenue for a long time, the proportion of total tax revenue that comes from each revenue source has changed over time.

Below is a chart that shows the share of total state and local revenue that each major revenue source has provided since 1977 (the data are from the US Census Bureau’s State and Local Government Finances). Most notably, since 1977 the share of revenue that comes from property taxes has declined, while the share from personal income taxes has risen. Other sources have remained relatively constant.

The large dip in the property tax share in the late 1970s is due in large part to Proposition 13 in California. In 1978 16.4% of all local property tax collections in the U.S. came from California. In 1979 property tax collections in California we cut almost in half. As a result, all other revenue sources saw a slight increase in their share of total revenue.

The other major feature seen in the data is the increase in the share coming from personal income taxes in the 1990s and the rapid reversal of that trend in the 2000s. This rise and fall is likely due to rising incomes during the prosperous 1990s and the subsequent collapse of the tech/dotcom bubble and its economic repercussions. As the share from personal income taxes rose, the share from other sources by definition did the opposite. Changes in income tax rates may have had some effect as well.

Note that the latest data available from Census are for 2007. Recent economic conditions may have had a significant effect on the relative sizes of the different state and local revenue sources. It will be interesting to see what the future holds for state and local tax collections. Keep you eyes open for more and older historical data, as we hope to be posting it in the future.

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