June 1, 1995

State Tax Rates and 1994 Collections

Arthur P. Hall, Ph.D.

Arthur P. Hall, Ph.D.

Download Special Report No. 50

Special Report No. 50

Executive Summary
 State tax and fee collections grew by 8.3 percent between 1993 and 1994. The growth in inflation-adjusted tax collections continues a trend that began more than a decade ago. The three fastest growing categories of state collections were license fees (33.1 percent), property taxes (10.6 percent), and corporate income taxes (9.9 percent).

On average, economic growth in 1994 accounted for almost all of the growth in state collections. For the nation, state collections grew 0.88 percent faster than personal income. That growth rate compares with an inflation-adjusted decade-long average of 1.1 percent.

However, the growth rate of state tax collections relative to personal income growth varies substantially from state to state. From 1993 to 1994, the five states that had the highest tax growth relative to personal income growth were New Hampshire, South Dakota, Delaware, Utah, and Mississippi. The five states that had the highest personal income growth relative to tax growth were Alaska, Rhode Island, Louisiana, Pennsylvania, and Vermont.

The growth of taxes relative to income does not necessarily correlate with the overall tax burden in a state. New Hampshire has the second lowest tax burden per $1,000 of personal income despite the fact that it recorded the fastest tax growth between 1993 and 1994. Alaska showed the slowest tax growth but has the highest state tax burden. However, Alaska, because of its large tax collections from oil production, is a unique case. (If Washington, D.C. were a state, it would have the highest ranking tax burden.)

Various measurements of the tax burden can differ substantially. For example, both Mississippi and New Jersey show an equally large disparity between their per-capita and per-$1,000-of-personal-income rankings. But the opposite direction of the disparities can be explained by the per capita income levels of the two states. Mississippi is ranked 36th in terms of tax burden per capita, but is ranked 8th in terms of tax burden per $1,000 of personal income. New Jersey is ranked 10th in per capita tax burden, but 38th in terms of tax burden per $1,000 of personal income.

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About the Author

Arthur P. Hall, Ph.D.

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A 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.

Inflation 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.

A 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.

A 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.