October 1, 1996

State Tax Rates and 1995 Collections

Download Special Report No. 64

Special Report No. 64

Executive Summary
State tax and fee collections grew by 6.7 percent between 1994 and 1995. 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 corporate income taxes (14 percent), property taxes (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.)