Special Report No. 27
State-level 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 continued their decade-long upward trend in Fiscal Year (FY) 1993. In fact, the 4.9 percent 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 growth rate from FY 1992 to FY 1993 constitutes the largest annual increase since 1985.
The record-setting state tax increases enacted in 1991, accompanied by recent economic growth, explains in large measure the rapid increase between 1992 and 1993. In fact, state tax collections grew 3.7 percentage points (or 1.7 times) faster than personal income. By comparison, state tax collections grew at an inflation-adjusted annual average of 1.1 percentage point (or 1.4 times) faster than personal income between 1983 and 1993.
Between 1983 and 1993 the experience of different states varied dramatically. It also shows that between 1992 and 1993 Alaska (a special case because of oil drilling), Mississippi, Colorado, North Dakota, and Tennessee had the highest tax growth relative to personal income growth. In contrast, Nebraska, Idaho, Pennsylvania, West Virginia and Montana constitute the top five states where personal income grew faster than state taxation. (If Washington, D .C. were a state, it would rank third, above Pennsylvania.)Share