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Retail Sales and Individual Income Taxes in State Tax Structures

1 min readBy: TF Staff

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Project Note No. 48

Executive Summary The startling growth of state government expenditures from $7.1 billion in 1946 to $31.6 billion in 1960 indicates the heavy pressures to which 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. structures have been subject in the post-World War II years. It may be that the degree of pressure will be somewhat less in the future. Nevertheless, most states still face large needs and demands for increased expenditures. They must decide to what extent increased state government seniors can be provided, and if so how these increases are to be financed. Among the alternatives are greater utilization of existing taxes or adoption of new taxes.

The purpose of this study is to examine the present and prospective role of the retail 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. and Ike 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. in state tax structures. The study analyzes the characteristics of these taxes, the extent of their utilization, factors affecting their further utilization, and the advantages and disadvantages as compared with each other and with other forms of taxation. The study does not examine in detail the question of the level and extent of services provided by state governments, but decisions on the expansion of existing programs and adoption of new programs will obviously affect the seriousness of the tax problem.